CPP debate delay wins no big supporters

Canada’s Finance Minister Jim Flaherty pushed back a decision about potentially boosting the country’s main public pension system to next year as governments study ways to enhance the plan given rocky economic times. The delay appears to have sparked criticism from both sides of the debate.

This article was published by Yahoo Finance on December 18th, 2012.  To see this article and other related articles on the Yahoo Finance website, please click here

Proponents of the enrichment are urging the federal government to modestly and gradually increase CPP contributions to help Canadians save more for retirement. But opponents are worried that increasing contributions during rocky economic recovery would be an additional financial burden on employers, potentially costing jobs.

The economy is forecasted to grow at around 2 per cent next year, and the global recovery is still vulnerable to shocks like the U.S. fiscal cliff and Europe’s debt troubles.

“The analytical capacity has been around for a very long time. So I interpret this talk as not so much about analysis, but obviously about political jockeying,” said Michael Wolfson, the Canada Research Chair in Population Health Modelling/Populomics at the University of Ottawa, and former assistant chief statistician at Statistics Canada.

“Every week or year that we delay enhancing Canada Pension Plan that’s another year we postpone helping people have a more adequate income in retirement,” he said.

Following two days of meeting, Flaherty said his governments need a bit more time to assess what a modest increase might actually mean for Canadians.

“We’ll need to have some kind of measure about real GDP growth or an unemployment rate, or both, triggers like that so that the ministers can be confident, and their governments can be confident, that the economy can take the extra burden that would be put on employers and employees were there to be an increase in the contribution rates to the CPP,” Flaherty said on Monday.

“That’s why we didn’t have consensus today because we all know we’re facing serious economic challenges right now in a fragile economy.”

But the delay didn’t seem to make anyone particularly happy.

The Canadian Federation of Independent Business told the Globe and Mail newspaper it is disappointed that Flaherty did not signal that  hikes to CPP premiums is off limits.

Advocates of an enriched plan, including the Canadian Labor Congress, reportedly called the meeting a failure because it didn’t result in some sort of action plan, while CARP, which is a nationally group advocating for seniors, said pushing back a decision to next June amounted to “lame excuses,” according to the report.

The rule for changing the CPP requires  two-thirds of the provinces, representing two-thirds of the Canadian population, said Rhys Kesselman, professor at the School of Public Policy at Simon Fraser University, who also holds the Canada Research Chair in Public Finance.

Although the CPP enrichment debate has been going on for decades, in 2010, the proposal to expand the plan initially had federal government support and appeared likely to proceed. But the feds pulled out and were apparently deterred by opposition from Alberta and Quebec.

It seems promising that those two provinces, along with strong proponent Ontario, seem to be at the very least open to the idea now, said Kesselman.

Canadian pensions in the red

Separately, in a report released on Tuesday, C.D. Howe Institute highlighted the problem of massively underfunded pensions, specifically focusing on federal employees.

William Robson, president and chief executive of C.D. Howe, said  the accumulated unfunded liability of these plans, using fair value accounting, stood at $267 billion at the end of March 2012, almost $118 billion worse than shown in the public accounts.

“Rates of return on investment are much lower than they used to be,” said Robson.  “So achieving a given income in retirement now requires much more saving. But while RRSPs and defined-contribution pension plans will pay whatever they can, and target-benefit pension plans can adjust benefits, defined-benefit pension plans have massive deficits. None are worse than the DB plans for federal employees.”

He added taxpayers will have to fund those pensions as they become payable, even as most of them struggle to fund their own, less comfortable, retirements.

© Yahoo Finance