While a number of European countries are endeavoring to rein in their state sponsored pension regimes, a move is afoot here to augment the Canada Pension Plan (CPP). Fortunately, Finance Minister Jim Flaherty has, at least for now, reversed his support for the idea. It’s good news, too, that he has gotten his provincial counterparts onside.
Going into today’s meeting of provincial and federal finance ministers, a coalition of union leaders and six provinces were insisting the CPP be expanded to help fund the retirements of an estimated 11 million Canadians without employer sponsored plans.  Currently, the CPP pays a maximum of $11,200 per year, which is roughly 1/3 of median individual income. Reformers would like to see that proportion go up, with Paul Moist of the Canadian Union of Public Employees (CUPE), for example, calling for an increase to 50% of pre-retirement income . People can always save more by contributing to their Registered Retirement Savings Plans (RRSP). But it’s argued that individuals are either unable, or don’t do enough, to take advantage of this private pension alternative.
Here are five reasons to oppose an expansion of the CPP:
1. There is little evidence that those who are already retired, or soon to be, are in financial straits. As Jack Mintz recently pointed out in The Financial Post, people over 65 have generally paid down all their debt. Many have equity in their homes as well as other assets. The poor among the elderly can also rely on Old Age Security, the Guaranteed Income Supplement, not to mention coverage of their health care.
2. The enhancement of the CPP would require higher payroll taxes. These are equivalent to an increase in wage costs for employers. And the laws of economics cannot be evaded: higher prices for labour means lower employer demand for it, everything else remaining equal. Ergo, fewer jobs.
3. The lack of private plans for workers at small to medium sized firms, in addition to the self-employed, can be dealt with by making it easier for these parties to pool their resources and offer such plans in tandem with private investment management companies. This is what Flaherty has proposed.
4. A bigger CPP pool of funds with which to make investments further raises the already existing risk that politicians will be tempted to direct that money towards their ideological projects.
5. Instead of exacting more from their employers and pay cheques, individuals are free to take that money and set it aside for their old-age. The counter-argument is that people are both short-sighted and too undisciplined to save enough on their own. Still, it does no good to encourage those tendencies by making people believe the state is going to take care of them. More importantly, it’s more in keeping with individual dignity if people are afforded the opportunity, and responsibility, of making their own decisions.
