I was struck recently by Globe and Mail columnist <a href="https://webmail.torstar.com/OWA/redir.aspx?C=UDSBySO3dUinGNckEk9e7aU2P2cvqNBIJWL9qvy55e0CMXsOfVh9MBqIVi7DcoZhv4mFVAvSG7A.&amp;URL=http%3a%2f%2fwww.theglobeandmail.com%2fcommentary%2fa-deal-with-europe-is-nation-building-governance%2farticle14966070%2f">Lawrence Martin’s applause</a> for the Harper government’s progress towards a trade deal with the European Community. He described this as a rare moment of nation-building from an otherwise dismal national government.
It was a reminder that we have been bereft of decent debate on important national policy issues for several years. We have learned to keep our expectations set to low when it comes to federal policy making.
There is no discussion or even acknowledgment of growing income inequality in Canada; no national childcare strategy or leadership on tough challenges such as mental health.
Against that dire backdrop it is refreshing to see a debate opening up on the emerging crisis of retirement income.
Premier Kathleen Wynne is sounding the alarm bells about pension income, saying that future retirees will be on the “brink of financial disaster” when they retire. Young workers are particularly at risk.
Wynne is joining a growing number of advocates for a more grownup version of the Canada Pension Plan (CPP). The CPP, which is funded by both employers and workers, currently pays a maximum of $12,000 per year, which is well below even the stingiest definition of a poverty line.
<a href="https://webmail.torstar.com/OWA/redir.aspx?C=UDSBySO3dUinGNckEk9e7aU2P2cvqNBIJWL9qvy55e0CMXsOfVh9MBqIVi7DcoZhv4mFVAvSG7A.&amp;URL=http%3a%2f%2fwww.thestar.com%2fnews%2fqueenspark%2f2013%2f10%2f31%2four_pension_peril_is_the_third_rail_of_politics_cohn.html">The Third Rail</a>, a new book co-authored by Jim Leech, CEO of the Ontario Teachers’ plan, and Jacquie McNish, of the Globe and Mail, provides a terrific overview of the pressure for pension reform. They too see an enhanced CPP as an obvious part of the answer. It is in place already, it is tied to employment and has the heft to play in global investment markets, which is increasingly key in obtaining decent returns.
Wynne is only saying what finance ministers and their departments across the country already know. She nailed it in her remarks to the Calgary Chamber of Commerce last week when she said, “Over the past 30 years, the burden of planning and saving for retirement has shifted to individuals. The savings vehicles we have in place don’t do the job anymore.”
She is right on both counts and is not exaggerating the dramatic shift in the pension landscape.
About 60 per cent of Canadian workers have no workplace pension plan and hence will be reliant on the CPP and Old Age Security/Guaranteed Income Supplement.
And shifting the burden of retirement savings to individuals has been consciously driven by federal policy. Think of the massive shift to individual-based RRSPs, and the more recent tax-free savings accounts. These have been a boon to banks and the investment community – as well as to high-income earners who can afford to put money aside and maximize the tax advantages of these schemes.
The downside of this shift is that all of the risk on investments and retirement savings is borne by individuals as opposed to being shared with employers or the state. These alternatives are also voluntary – and so are less likely to be used by younger Canadians.
The latest voluntary scheme being considered in Ottawa is the introduction of pooled registered pension plans which could be adopted voluntarily by employers, with the downside risks once again being shouldered by workers who might choose to participate.
Another part of this pensions “re-set” has involved an all-out attack on defined benefit pension plans, under which perhaps too much risk is borne by employers, including public sector employers (and in turn, taxpayers). These plans are becoming rare in the private sector and the politics of envy are being deployed to place pressure on defined benefit plans in the public sector.
But downside risk does not have to be an all-or-nothing proposition. Jim Leech told the Globe and Mail this week that: “We must turn to some sort of risk-sharing plan, where some of the benefits are guaranteed but some are also contingent on the financial wherewithal of the plan.”
Wynne has said while enhancing the CPP is her first priority, the matter is urgent enough that Ontario might go it alone with an Ontario pension plan to supplement the CPP. While widely perceived as a negotiating ploy to add pressure for the call for a stronger CPP, Ontario Finance Minister Charles Sousa has obviously thought this through.
Together with the inefficiencies associated with a parallel Ontario pension plan, a separate plan would lose the critical investment power of the $183-billion CPP. Sousa reckons, however, that Ontario could merge a future OPP with other large Ontario pension funds such as the Teachers’, OMERS (municipal) and Ontario Public Service plans for both investment weight and efficiency in administration.
Today, Sousa is raising the issue with his finance counterparts from across the country. Manitoba and P.E.I. are open to upping the CPP and the Canadian Labour Congress and larger unions have lobbied for a doubling of CPP benefits.
This will set the stage for a further discussion of pensions at the next meeting of provincial premiers at the Council of the Federation meeting in mid-November. Finance ministers are scheduled to meet again one month after that. These meetings are important because, even if the feds come onside, changing the CPP would need support from seven provinces with two-thirds of the country's population.
There have been on-again, off-again federal-provincial talks for years on CPP enhancements.
Until recently Federal Finance Minister Jim Flaherty had signalled an interest in incremental enhancements to the CPP phased in over a number of years, but appears to have backed off under pressures from employer groups who have raised boogie-man language of tax increases.
Kevin Sorenson, minister of state for finance, has said that “We share the concerns of small business, employees, and some provinces of increasing costs during a fragile global recovery.”
On the eve of today’s meeting of finance ministers, Sousa telegraphed the view that an incremental approach to growing the CPP over time would be responsive to concerns about the fragile state of the economy. It sounds a lot like the approach that Jim Flaherty was pondering previously, and should be enough to bring more provinces into the tent.
Everyone seems to agree that growing the CPP in some way is one important part of a much needed retirement income strategy. It would look good on Ontario if it played a part in pushing this over the finish line.

Dean: Can Ontario push pension reform over the finish line?

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