Pension proposals meet resistance ahead of minister's meeting

Originally published in the Financial Post June 11th, 2010. To go to the Financial Post Website please click here

TORONTO — Ottawa and Ontario, which are leading the charge to reform the retirement income system across the country, are quickly running into resistance from other provinces and small business.

In advance of a meeting of provincial finance ministers meeting in Prince Edward Island on Sunday, federal Finance Minister Jim Flaherty made it clear he supports “modest” increases to Canada Pension Plan (CPP) premiums. This was highlighted in a letter to Ontario Finance minister Dwight Duncan on Thursday.

Ottawa and Ontario also want to make it easier for small employers to pool resources to offer workplace pensions administered by the nation’s insurance companies, banks and fund companies.

In Victoria Friday Mr. Flaherty fanned the flames further when he told executives that citizens who have saved enough for retirement will eventually be asked to help those who haven’t.

The Canadian Federation for Independent Business (CFIB) blasted the prospect of hiking “mandatory payroll taxes” as “outrageous.” CFIB president Catherine Swift was quick to denounce a further rise in CPP premiums, which reached a combined employer/employee rate of 9.9% of the average wage, following pension reform in the 1990s.

“Small businesses in Canada are already bracing themselves for maximum allowable increases in Employment Insurance (EI) premiums for the next four years,” Ms. Swift said Friday in a statement, a move she says will cost 170,000 jobs. On top of possible hikes in workers compensation premiums and minimum wages, the combined increases will take a “big bite out of the payroll budgets of virtually every business in Canada. Shouldn’t ministers of finance be just as concerned about job creation as they are about retirement income?”

In his letter, Mr Flaherty refers to a “modest, phased-in, and fully funded enhancement to defined benefits under” the CPP.

Such changes would require majority support from the provinces, which Mr. Flaherty said he hopes to get in P.E.I.. Tghat won’t come from Alberta.

Alberta Finance minister Ted Morton said Friday the province will oppose the plan, because it’s “not a targeted response to the issues at hand.”

“We believe it’s an overreaction to the issue,” Mr. Morton told reporters in Calgary.

Alberta and British Columbia have pushed for a so-called ABC plan that would combine private sector delivery of workplace pensions with public oversight and monitoring.

But some think modest hikes to CPP premiums and benefits are not nearly enough. Susan, Eng, advocacy vice-president of CARP, which represents the 45-plus age cohort, said anything less than a boost from the current 25% of average wages to at least to 35% or 45% “would not be meaningful.” CARP has previously called for a CPP-based Universal Pension Plan.

A more radical proposal by the Canadian Labour Congress would see a doubling of CPP benefits.

Paul Forestell, senior partner with human resource consultants Mercer Inc. in Toronto, questoned the math of the labour movement’s proposed doubling of CPP benefits, which would require a significant hike in payroll premiums. “Someone would have to pay for that and it’s not obvious who,” he said.