Originally published June 14th, 2010. To go to the Globe and Mail website please click here
The Conservative government is asking provinces and territories to support a “modest” and gradual hike in Canada Pension Plan payroll premiums to cover increased benefits as governments plan a response to widespread concern that Canadians simply aren’t saving enough for retirement.
The proposal from Finance Minister Jim Flaherty, which he said should be combined with tax changes to encourage more voluntary saving, is revealed in a letter sent to his fellow finance ministers on Thursday.
After a year of cross-country consultations, the letter is the first indication of where Mr. Flaherty intends to go on the issue of pension reform.
“I heard strong support for the Canada Pension Plan and the central role that it plays in our government-supported retirement income system,” Mr. Flaherty writes.
Ontario finance minister Dwight Duncan outlined a similar position in a letter of his own, supporting increases to the current CPP system and rejecting a competing proposal for a “supplemental” plan.
The positions of Canada and Ontario narrow the options for potential compromise as finance ministers from across the country gather on Sunday at a Prince Edward Island seaside resort for two days of meetings.
Ontario’s declaration puts the provincial Liberal government in opposition to a recommendation federal Liberal leader Michael Ignatieff made last year. British Columbia and Alberta were also advocates of a supplemental public option that would essentially compete with private mutual funds, but Alberta has reversed course and now says major pension changes are not needed.
In the aftermath of a recession that decimated the private savings of many Canadians, the state of Canada’s pension system rose to the attention of politicians across the country and alarming statistics surfaced. According to the advocacy group CARP, about 60 per cent of the Canadian work force do not have access to a workplace pension and one in three Canadians retire without any savings.
Opinion on the scope of the problem varies considerably. Several unions warn Canada faces a pension crisis, while others are of the view that only smaller changes are required to address low savings among middle income Canadians. That view was put forward in a report by the University of Calgary’s Jack Mintz that was released when the finance ministers last met in December.
The agenda of the PEI meeting will focus on pensions, the state of the Canadian economy and government plans to deal with the large budget deficits that built up as a result of the recession. In an interview with The Globe and Mail, Mr. Duncan said “modest” increases to CPP premiums and benefits is the best way to ensure Canadians save more.
“We are rejecting the notion of a supplemental, voluntary national plan for a variety of reasons,” he said on Thursday. “It’s very costly to set up and administer.”
Under the current system, CPP payments average just over $6,000 a year, up to a maximum of about $11,000.