CPP reform: Four scenarios for what Ottawa and provinces can do next

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Federal Finance Minister Jim Flaherty threw cold water on proposals to expand the Canada Pension Plan, saying it is not the time to raise premiums while the economy is weak.

But his decision will not end the CPP debate with provinces such as Ontario threatening to act alone Monday to expand the benefits. Expert studies have identified people earning between $30,000 and $100,000 a year as the group most likely to face a large drop in their standard of living in retirement, leading many policy experts to propose reforms that would target that group.

Here are some of the key policy options:

SIGNIFICANT CPP EXPANSION

The NDP and the Canadian Labour Congress (CLC) have championed plans in recent years to double the CPP for all income earners. Currently, the CPP is designed to provide income in retirement equal to about 25 per cent of an employee's working income, up to a maximum benefit of just over $12,000 a year on income at the cap of $51,100 a year.

The CLC says the CPP should instead set its payment target to 50 per cent of working income in retirement, effectively doubling the annual payout, but also requiring higher premiums to fund the expansion.

MODEST CPP EXPANSION

This appears to be the favoured option of many provincial leaders in Canada, although there doesn't appear to be unanimity on what a "modest" expansion should mean.

Prince Edward Island Finance Minister Wes Sheridan – with Ontario's support – has suggested expanded premiums and benefits only for people earning more than $25,000 a year, so that lower-income earners wouldn't face new payroll deductions they can least afford. He also supports raising the cap on CPP income to $100,000 a year from $51,100 currently, which means paying higher annual premiums but also receiving more retirement benefits above that level.

Some have proposed making the higher tier of benefits voluntary, or creating different premium tiers at different income levels, but the options become more complex to administer.

NO CPP EXPANSION

The Canadian Federation of Independent Business and other critics have rejected the idea of expanding the CPP, arguing the higher premiums required to fund it amount to a new payroll tax at a time when business can least afford it. Instead, they have championed a new personal savings plan option, known as a Pooled Registered Pension Plan (PRPP), which has already been embraced by some provinces such as Quebec and Alberta and has been championed by Mr. Flaherty.

Under the PRPP proposal, workers without a company pension plan could voluntarily agree to set aside savings in a pooled fund that would be professionally managed by a financial institution such as an insurance company. Payouts in retirement would depend on how well the investments perform.

PROVINCES EXPAND CPP ON THEIR OWN

Ontario Finance Minister Charles Sousa said Monday the province could move ahead on its own to expand CPP benefits after Mr. Flaherty rejected the options.

Mr. Sousa told reporters Monday the plan needs to be amended now while most baby boomers are still working so that there is time for their benefits to grow to help fund their retirements. He says Ontario has the "critical mass" to pull off a CPP expansion on its own.