The lines aren’t exactly parallel, but if there is any debate north of the border that mirrors the American divide over Obamacare, it’s the argument we’re having over a proposed expansion of the Canada Pension Plan to address our collective failure to save enough for retirement.
It is our political line in the sand between those who believe only government can fix societal deficiencies and those who think the state is already too intrusive, thank you.
The statists, led by Ontario Premier Kathleen Wynne and her Finance Minister Charles Sousa, warn that the country is headed for a “huge economic crisis” unless governments move now to expand the CPP in order to protect future retirees’ standard of living.
The skeptics, whose most vocal champion has recently become federal junior finance minister Kevin Sorenson, retort that a so-called “Big CPP” would be a power grab that would “take more money out of the pockets of employees and force employers to cut jobs, hours and wages.”
You will hear these talking points on Monday when the NDP tables a House of Commons motion to expand the CPP and again when the federal and provincial finance ministers meet Dec. 16 in Ottawa. What’s striking is how similar these well-rehearsed lines are to the entrenched positions each side adopted in the U.S. debate over Obamacare.
If there is a lesson to apply to our CPP debate, it’s that the Affordable Care Act – Obamacare – worked better on paper than it’s proving to work in practice. While it may achieve some of its goals by covering a portion of the uninsured, it will come with major disruptions and costs in the health insurance market.
A CPP expansion may not match Obamacare in scale, but it would constitute a massive realignment of Canada’s pension system in both the public and private sectors. It would reshape employee compensation and create winners and losers.
First, it’s important to clarify what a CPP expansion would not do. It would not, as Mr. Sousa seems to think, reduce poverty among seniors. Failure to expand the CPP, the Ontario Finance Minister said last month, would “cost the system – in this case the provinces – a lot more money on social assistance programs to support these people in need at retirement.”
Reducing the 7.2-per-cent poverty rate among seniors would likely require an increase in federal Old Age Security and Guaranteed Income Supplement benefits. Poor seniors who qualify for the GIS are not eligible for CPP benefits at all because they never contributed to the plan. None of the current proposals to expand the CPP would change this.
If a CPP expansion is on the table at all, it is to address the apparent failure of middle-class Canadians without workplace pension plans to save enough to maintain their current standard of living when they retire. They don’t face poverty, as Mr. Sousa and others suggest, but a sharp drop in income that would reverberate throughout the economy by reducing consumer spending.
A mandatory expansion of the CPP might help this group. But what would it mean for Canadians who already have employer-sponsored pension plans? Would it hasten the demise of such plans? And would that result in such workers having to contribute a lot more than they do now?
Provincial governments might be big winners since benefits from a Big CPP (funded equally by employers and employees) would partially replace those that are now disproportionately funded by employer contributions to provincial public-service pension plans. (This might partly explain cash-strapped Ontario’s enthusiasm for a Big CPP.)
An expanded CPP would also result in a massive transfer of wealth from private pension plans to a mega-sized public one. Is that kind of concentration what we want? This newspaper has called the CPP “one of the country’s great public policy successes.” But it was not always thus. The current 9.9-per-cent contribution rate is the inflated price post-baby-boomer Canadians are paying for the CPP’s gross mismanagement until 1997. Can we risk that again?
The only way to avoid further burdening future generations is to ensure that contribution rates for a Big CPP are high enough from the outset to fund benefits that won’t start kicking in for at least two decades. The sticker shock will likely be much higher than proponents of a Big CPP suggest, given demographic trends and declining real rates of return on pension investments.
Like Obamacare, a Big CPP might look good on paper. It might not be so pretty in practice.Report Typo/Error