Pension Reform – Slow Progress or No progress

December 10, 2010 – Six months will have passed since the Finance Ministers’ meeting in PEI which seemed to be a breakthrough in pension reform. They are meeting again on December 20 in Kananaskis, Alberta. For anyone monitoring the progress of pension reform, it’s fair to wonder whether any progress has since been made. The answer, unfortunately, is no.

When the finance ministers concluded talks in June, they announced consensus, if not unanimity, on the need to increase CPP modestly. At the time, Federal Finance Minister, Jim Flaherty said that a “couple of ministers need to go back to their governments to have further discussions on that option, but we are going to go ahead and mandate our senior officials to work collaboratively on technical and implementation issues … and to complete this work by the fall.”

Fall has come and mostly gone, and little of import has been accomplished. A number of governments issued consultation documents soliciting expert and citizen input on CPP reforms. CARP submitted responses to both the Nova Scotia and Ontario governments, supporting CPP enhancement, while urging the respective governments to not lose sight of the central issues in pension reform: savings adequacy, universal coverage, defined benefits, and low management expense costs.

To read CARP’s submission to the Nova Scotia Government click here

To read CARP’s submission to the Ontario Government click here

CARP stands by it Universal Pension Plan as a comprehensive means of ensuring retirement savings adequacy for all Canadians. The core goal of any country’s pension system, after all, is to provide an adequate system available to the full breadth of the population that is sufficient to prevent poverty in old age. It must be affordable by the employers and employees and other participants and robust enough to withstand major shocks, including economic, demographic, and political volatility.

From Modest CPP Expansion to Modest Expectations

Unfortunately, the general tone surrounding pension reform has turned from modest CPP enhancement to setting modest expectations. If the PEI meeting represented a confident step forward, the tone of pension discourse leading up to Kananaskis is decidedly more cautious. Flaherty recently announced that CPP enhancements are “not something that will happen quickly. We have to first of all agree on where we’re going and make sure everybody’s happy with that. We already have at least one dissenting province and as you know there’s a quota rule in there, and I don’t know what the position of Quebec is.”

Well, Quebec is sitting on the fence. The “one dissenting province”, on the other hand, is Alberta, and its spokesperson on the issue is Finance Minister Ted Morton, for whom the pension problem is not as significant as it seems to the rest of us and the proposed solution is too great for the problem. “So why, when you have a fairly narrowly defined retirement-income problem that needs to be solved, why do you come in with a CPP hike that hits everybody?” Morton asked. “And particularly, why do you do it when we’re trying to come out of a recession and job creation is probably the most important thing governments are doing. In the end, it’s a payroll tax.”

Minister Morton and like-minded critics seem to forget that CPP enhancements made in the late 1990’s not only weren’t job killers, but the unemployment rate dropped in subsequent years. Similarly, any downward pressure on wages due to CPP premiums increasing is largely a matter of deferring income, which after all is the point of saving for retirement. Simply, the money put aside now is not lost income, its deferred income.

With few exceptions, governments have also failed to see how helping people save for themselves will reduce pressures on government budgets. Currently, OAS and GIS are paid from the general tax base. The more Canadians are given an opportunity to save adequately from their own earnings, the less government will have to dedicate to supplementing retirement income from current tax dollars. All Canadians want a secure means of providing for their own retirement. At a time of increased budgetary constraints, we should expect our governments to jump at the chance to provide the savings vehicles so that people can save for their own retirement rather than look to government support later.