by Susan Eng
There are good reasons for those who are already providing workplace pension plans to support an increase to the CPP. The most obvious is that higher CPP benefits reduce pension obligations under most plans. According to a recent survey by Morneau Shepell, more than half of those polled were willing to increase employer contributions to the CPP or some kind of DC arrangement.
This counters the impression that all employers resist contributing to the security of their employees futures because the economy is too soft. The concerns of small and medium-size businesses that they could not afford increased CPP contributions can be addressed with a phase-in period or an exclusion of lower-income earners. (Low-income employees in every workplace do not have to contribute to the plan or have contributions matched by the employer.)
Pension contributions are not taxes; they are immediately reinvested, creating jobs and bolstering business growth. Pension benefits are taxed and spent in the economy. Government coffers also benefit. Pensions are not handouts;theyre bought and paid for by pensioners, and they actually offset OAS and the Guaranteed Income Supplement (GIS) that the government would otherwise pay. And, most important, to secure the same amount of income stream, individual savings would have to be much greater than the CPP contributions. Plan sponsors no doubt adopted this type of deferred compensation as less costly than current salary increases.
This article was written by Susan Eng and published by Benefits Canada on February 1st, 2014. To see this article and other related articles on their website, click here.
And it bears repeating that only the younger generation will benefit from any improvements to the CPP, which has enough to pay out benefits for the next 75 years (based on the 75-year period of the Chief Actuarys report). All Canadians pay their own way.
There is fairly broad agreement among think tanks, pension experts such as Jim Leech (newly retired CEO of the Ontario Teachers Pension Plan), retirees and even most of Canadas finance ministers that Canadians are not saving enough; that the middle-income groups are most at risk of a substantial drop in their standard of living once the paycheques stop; and that increasing the CPP is one good way to improve their retirement future. The federal and provincial finance ministers disagree as to timing, so no consensus was reached at the December 2013 meeting.
With the federal government unlikely to agree in the foreseeable future, Ontario has decided to lead the charge for the provinces to join a made-in-Ontario plan or set up parallel plans. Consultations have already begun, and a proposal will be introduced in the spring. CARP has long proposed a universal pension plan (UPP) modelled on the CPP, with payroll deductions and professional management independent of employers and government. CARPs UPP can be, but is not necessarily, part of the CPP.
A supplementary provincial or regional plan allows for some flexibility in design. Enrollment can be mandatory but with an opt-out. Employer contributions can be matching or also subject to an opt-out. Contributions can increase with longer service or age to address the problem that people early in their career may not be able to save or even pay higher premiums, and specific income groups can be targeted. Any regional plan must be portable and accessible by all Canadians to avoid the patchwork and inequities that would otherwise occur.
The purpose of a countrys pension system is to prevent poverty in old age. Over the past decades, OAS and GIS;along with increasing CPP benefits;have brought seniors poverty levels down from double digits throughout the 70s, 80s and most of the 90s to about 5.2% in 2007. But the CPP is at its maximum now, and senior poverty rates have begun to increase again, rising to 7.2% in the latest Organisation for Economic Co-operation and Development figures. This will continue unless action is taken now to either increase the CPP or create a supplementary, universally accessible and affordable pension plan to help Canadians secure their retirement future.
Get a PDF of this article.