Finn Poschmann is chief executive officer at the Atlantic Provinces Economic Council.
Is a bigger Canada Pension Plan on its way?
Recent meetings among federal and provincial ministers, many of them new to the job after election wins, brought renewed debate over the employment-based public tier of the Canadian retirement savings system – the Canada Pension Plan.
With a new federal budget due in a matter of days, it's time to wonder what might be cooking.
Several events have brought the issue to the fore. One was the federal election: On the campaign trail, Prime Minister Justin Trudeau offered a boost to the CPP to help low-income seniors. That idea dovetailed with a key campaign theme that emphasized middle-class angst about income and retirement savings. Another event has been provincial elections: Alberta's new government has reversed the province's position and now supports CPP expansion.
And before all that was Ontario Premier Kathleen Wynne's rollout of a proposed Ontario Retirement Pension Plan, an idea that now seems to be resting mercifully on a back burner.
The ORPP plan, targeted at employees without workplace pension plans, was always a solution in search of a problem. The government spoke of the middle class and raised worries about low household savings rates, but didn't explain why middle-class employees couldn't save for themselves, or use private pension plans.
In any case, the government's proposed plan was a bigger deal for low-income employees and the young. But it's not clear that the youngest workers could or should be saving more, nor why they and employers would want to contribute more to a public savings plan. Indeed, most employer groups vigorously oppose the idea.
For the moment, Ontario is acting as if the ORPP will come to be in 2017. But the province would put that plan permanently on hold if an expanded CPP was on its way, and that's where other provinces come in. CPP changes require the agreement of seven provinces, including Quebec, representing at least two-thirds of Canada's population.
Why would the provinces, especially the Atlantic ones, want that? Certainly their small-business owners aren't looking for it. And again, it can't be for the young. CPP contributions in the early years of working have no detectible impact on postretirement entitlements, but would crimp budget room to put money toward postsecondary education or a house purchase.
Middle-class Canadians already have plenty of access to tax-recognized savings vehicles, through registered retirement savings plans and tax-free savings accounts. And the well-to-do can look after themselves.
What about the low-income seniors Mr. Trudeau spoke of? Raising the contribution rate to fund future benefits can't help today's seniors, and simply raising current benefit levels would unmoor the program's funding base, or require a bigger transfer from today's young people.
Anyway, Canada's seniors have had a good run of it. The success of our private and public savings tiers, plus Old Age Security and top-ups, means that over the past generation, the percentage of seniors living below Statistics Canada's low-income cutoffs, after tax, has bottomed out. We are practically running out of them. Because of boomer demographics, the population share of seniors is rising, which explains a lot of the fall in household savings rates that some policy makers fret over. The average household savings rate, as measured, is low and sharply depressed by the rising share of seniors who are not working, but drawing down their savings and collecting pensions – and the CPP. So an expanded CPP seems a little like the ORPP – a solution in search of a problem. What, then, are the provinces and Ottawa to do?
Allowing individuals to opt in to an expanded CPP would be administratively implausible, and especially hard on employers. What could be possible, however, is allowing individual provinces to opt in on behalf of resident workers and businesses. It would add to administrative complexity – what happens when someone moves from an "in" to an "out" province? Is an "in" province permanently in? – but it's arguably plausible. In an opt-in structure, provinces that failed to find a problem for an expanded CPP to fix could stay out. For provinces looking to attract employers and employees and build jobs, this option could be valuable. For others who look a couple of decades down the road and don't see seniors' incomes on a healthy track, participation might be important.
The policy message is clear all the same. Governments contemplating an expanded CPP should identify the problem they wish to solve, step back and ask whether the CPP solves it.