We have a solution to the future pension crisis, the news reports coming out of the June meeting of federal and provincial finance ministers in Prince Edward Island proclaimed, and it is to beef up the Canada Pension Plan. At which, organized labour cheered, small business booed and pension experts sighed in resignation.
While expanding the existing CPP may be the easiest fix, it misses the mark, pension consultants say. ‘The CPP isn’t broken. There’s nothing to be fixed,’ laments Greg Hurst, a principal with national benefits administrator Morneau Sobeco. Instead, he says, governments need to focus on the declining availability of workplace pensions and the low rate of personal retirement saving.
Ironically, the interests pushing for the CPP changes — the labour movement and CARP, which represents current retirees — are not the ones at risk of an income shortfall, Hurst notes. Almost all union members have workplace pensions, and today’s pensioners are, by all objective measures, faring well. The working poor, who often see their income stay the same or even increase upon retirement, thanks to Old Age Security and the Guaranteed Income Supplement, are not in danger either. Yet they would see still smaller paycheques if the mandatory contributions to CPP were increased.
That’s why pension advisers like Hurst hope the federal government ignores big labour’s call to double contributions and benefits, and instead raises the maximum insurable income limit from today’s $47,200 to as much as double that. The effect would be to leave the contributions of lower-income Canadians as they are, while middle-income earners — who are most at risk of a shortfall — would be forced to save more now in return for higher benefits later.
Even that change, as Alberta Finance Minister Ted Morton stated publicly following the meeting, is a coercive, one-size-fits-all approach to a potential problem that affects only certain segments of the population. If CPP limits go up, even people who are saving enough to retire comfortably will be forced to pay in more — and probably cut back their RRSP contributions (and debt repayment) as a result.
Worst of all, increasing CPP premiums may kill off a much more innovative idea the ministers also discussed: a new class of supplementary, multi-employer pension plans, that would actually address the real issue at hand.