CPP reform pushed by provinces

P.E.I. Finance Minister Wes Sheridan has told the Globe and Mail he wants the federal government to boost Canada Pension Plan premiums so middle-class Canadians can have a richer pension in retirement.

It’s a proposal that federal Finance Minister Jim Flaherty has rejected in the past, but Sheridan wants to put it on the agenda at a December meeting of federal and provincial finance ministers.

He has written to his counterparts at the other nine provinces and two territories suggesting a plan that would raise the maximum insurable earnings cutoff from $51,000 to $102,000.

That would nearly double the CPP contribution for some higher income earners, but it also would mean a sharp increase in their benefits on retirement.

The maximum retirement benefit CPP would pay would increase to $23,400 from $12,150 a year.

“We must find a way to strengthen retirement income for Canadians,” Sheridan said in a tweet this morning.

Ontario has been pushing for CPP reform for a couple of years and finance minister Charles Sousa agreed the provinces should press Flaherty on pension reform at the next meeting.

The main concern is that middle-class Canadians are not saving for retirement, despite vehicles such as RRSP and tax-free savings accounts that provide an incentive to save.

Flaherty has said he doesn’t want to raise CPP premiums at a time when the economy is fragile. He raised the age for younger workers to be eligible for OAS to 67 in last year’s budget.

But when finance ministers last met in December he said changes to CPP are much further down the line. He also insisted no change could be made until there is unanimous agreement on a plan among the provincial finance ministers.

The Canadian Federation of Independent Business responded today to Sheridan’s proposal for increased premiums, saying the plan would kill jobs.

"CFIB's research found that earlier proposals to increase CPP/QPP premiums would kill between 700,000 and 1.2 million person years of employment. While we will review P.E.I.'s proposal carefully, the hike in premiums would likely have a massive impact on small businesses and their ability to create or even retain jobs," said Dan Kelly, CFIB president.

The CFIB also said it has led a multi-year campaign against CPP/QPP premium hikes since they were first proposed by Canada's finance ministers in 2010 and it will continue that campaign this December.

“It’s a good thing that this conversation is taking place,” Goldy Hyder, president of Hill and Knowlton Strategies said during a discussion of the issue on CBC’s Lang & O’Leary Exchange. “We’re still at the front end of what could be a very serious crisis in demographics and people need to start thinking about this.

“But what we also need to start thinking about is ‘Is it the government’s job to force you to save for your own retirement?’"

Hyder said he believes it is an individual responsibility to prepare for retirement and government’s job is to make it easier and to educate. He also expressed concern about enlarging a payroll tax at a time when employers are already burdened.

Armine Yalnizyan, senior economist at the Canadian Centre for Policy Alternatives, also believes it’s time to talk about expanding CPP, in part because it has been such an effective pension plan.

Canadians are having trouble saving on their own, she points out.

“People are legitimately scared that they’re going to outlive their savings. This is a system – the only part of the retirement system in the last 50 years that actually has delivered the bacon ...People know exactly what they are going to get on retirement when they pay into it.”

Yalnizyan supported Sheridan’s proposal as “a sweet deal for everybody.”

Bill Robson, CEO of the C.D. Howe Institute, disagreed, saying tomorrow’s workers always pay more than their fair share with CPP.

“I smell a rat any time somebody talks about expanding the Canada Pension Plan,” he said.

“It was set up as a completely unfunded Ponzi scheme so the people who put money in at the very beginning pay very small amounts and their benefits are paid by younger people down the road.”