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Canada's Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa June 9, 2010. (CHRIS WATTIE/Chris Wattie/ Reuters)
Canada's Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa June 9, 2010. (CHRIS WATTIE/Chris Wattie/ Reuters)

Flaherty proposes raising Canada Pension payroll premiums Add to ...

The Conservative government is asking provinces and territories to support a "modest" and gradual hike in Canada Pension Plan payroll premiums to cover increased benefits as governments plan a response to widespread concern that Canadians simply aren't saving enough for retirement.

The proposal from Finance Minister Jim Flaherty, which he said should be combined with tax changes to encourage more voluntary saving, is revealed in a letter sent to his fellow finance ministers on Thursday.

After a year of cross-country consultations, the letter is the first indication of where Mr. Flaherty intends to go on the issue of pension reform.

"I heard strong support for the Canada Pension Plan and the central role that it plays in our government-supported retirement income system," Mr. Flaherty writes.

Ontario finance minister Dwight Duncan outlined a similar position in a letter of his own, supporting increases to the current CPP system and rejecting a competing proposal for a "supplemental" plan.

The positions of Canada and Ontario narrow the options for potential compromise as finance ministers from across the country gather on Sunday at a Prince Edward Island seaside resort for two days of meetings.

Ontario's declaration puts the provincial Liberal government in opposition to a recommendation federal Liberal leader Michael Ignatieff made last year. British Columbia and Alberta were also advocates of a supplemental public option that would essentially compete with private mutual funds, but Alberta has reversed course and now says major pension changes are not needed.



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In the aftermath of a recession that decimated the private savings of many Canadians, the state of Canada's pension system rose to the attention of politicians across the country and alarming statistics surfaced. According to the advocacy group CARP, about 60 per cent of the Canadian work force do not have access to a workplace pension and one in three Canadians retire without any savings.

Opinion on the scope of the problem varies considerably. Several unions warn Canada faces a pension crisis, while others are of the view that only smaller changes are required to address low savings among middle income Canadians. That view was put forward in a report by the University of Calgary's Jack Mintz that was released when the finance ministers last met in December.

The agenda of the PEI meeting will focus on pensions, the state of the Canadian economy and government plans to deal with the large budget deficits that built up as a result of the recession.



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In an interview with The Globe and Mail, Mr. Duncan said "modest" increases to CPP premiums and benefits is the best way to ensure Canadians save more.

"We are rejecting the notion of a supplemental, voluntary national plan for a variety of reasons," he said on Thursday. "It's very costly to set up and administer."

Under the current system, CPP payments average just over $6,000 a year, up to a maximum of about $11,000.

Ontario hopes clear decisions will come out of the PEI meetings to counter criticism that pension talks have dragged on too long, but that may be a challenge. Nova Scotia finance minister Graham Steele told the Globe on Thursday that he is not taking a firm position and wants to hold provincial consultations before committing to anything.



"This meeting really is only a step on the road," he said. "I'm not expecting any big decisions... If there's going to be any changes involving the Canada Pension Plan, we have to make sure that we get it right, and that necessarily takes time."

In March, Mr. Flaherty released a consultation paper on pension reform that laid out three options. The first was a voluntary, government-sponsored pension plan - possibly as a supplemental offering by the CPP. The second was to expand the CPP in its current form by increasing premiums and benefits. The third option would be to amend tax rules to make it easier for the private sector to create large defined-contribution plans. This would primarily benefit small businesses and the self-employed, categories where many workers often do not have pensions.



Several independent reports were released Thursday in an attempt to influence the debate in PEI..

The TD Financial Group said Canadians making $30,000 to $80,000 are most "at risk" of not saving enough to maintain their current standard of living. It concludes that smaller changes should be made now - including allowing Canadians to contribute more to registered savings plans and tax-free savings accounts. According to TD, decisions on the larger options should be made soon, but further research is needed.

The research team at BMO urged ministers on Thursday to consider raising or eliminating the age limit of 71 for contributions to RRSPs. Meanwhile, the Canadian Federation of Independent Business stated that a survey of its members found 71 per cent are opposed to a proposal advocated by unions that would double CPP premiums and benefits.

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