CPP Reform Should Target Middle-Income Canadians, Coalition Argues
A coalition of business groups and youth advocates is calling for an expanded Canada Pension Plan – but only if it is targeted at middle-income levels.
In a joint letter sent to finance ministers across the country, the coalition argues that higher premiums to pay for more generous retirement benefits should kick in at annual earnings of about $27,500. Helping Canadians who earn less than that is better accomplished through Old Age Security and the related Guaranteed Income Supplement, the groups argue.
The letter is signed by 14 business groups, including the Canadian Life and Health Insurance Association, the Investment Industry Association of Canada and the chambers of commerce for Atlantic Canada, Quebec, Ontario, Saskatchewan and Manitoba. It is also signed by Generation Squeeze, a Vancouver-based national organization that advocates for Canadians in their 40s and younger.
The letter comes ahead of Finance Minister Bill Morneau’s June 20-21 meeting in Vancouver with his provincial and territorial counterparts on options for CPP reform. Mr. Morneau has promised to reach a deal by December on expanding the CPP. However, the CPP is a joint program of the two levels of government and any change requires the support of seven of 10 provinces representing two-thirds of the Canadian population. It is not clear whether Mr. Morneau will have enough provincial support to proceed.
The decision of the organizations to endorse a targeted expansion of the CPP – which would include new mandatory contributions from employees and employers to pay for larger retirement benefits – shows Canadian business leaders are not all on the same page when it comes to pension reform. The Canadian Federation of Independent Business, a small-business lobby group, argues that any expansion would amount to a job-killing payroll tax.
Frank Swedlove, president of the Canadian Life and Health Insurance Association, said the groups signing the letter are concerned that a patchwork of policies is developing across the country. He said members are particularly concerned with the planned Ontario Retirement Pension Plan and want ministers to agree on a national approach that would be portable for workers and simpler for employers to manage.
Mr. Swedlove said several research papers in recent years have concluded that there is no broad-based retirement crisis on the horizon and that problems related to under-saving are primarily linked to middle-income Canadians in the private sector who do not have a workplace pension. The signatories to the letter argue that ministers should focus their efforts on that segment of the population, rather than imposing a broad-based expansion of the CPP.
“A more targeted approach would be more effective,” he said in an interview.
Mr. Morneau has not said what type of CPP reform he would prefer. Federal and provincial officials are currently working on options for ministers to consider in June. When they last met in December, Quebec Finance Minister Carlos Leitao said there was support for a targeted change aimed at annual income of between $50,000 and $75,000.
The coalition, which has placed its open letter in newspaper ads across the country, including The Globe and Mail, calls for a national response to the savings issue that is divided into three parts.
For Canadians earning less than $27,500, the coalition argues they should be exempt from any CPP change. The argument is that higher CPP premiums at that level would amount to a tax on low-wage workers. The coalition also warns that higher CPP benefits for low-income Canadians could be offset by reduced payments through Old Age Security and the Guaranteed Income Supplement, which are distributed based on income. The letter recommends further help for low-income widowed seniors, based on studies showing single seniors are most at risk of poverty.
For higher income levels, the coalition recommends a focus on private-sector pooled pension plans. Mr. Swedlove said the relatively new Quebec system, which requires companies without a pension plan to enroll their workers in a pooled plan with the right to opt out, is a model to follow.