A bigger CPP isn’t about ‘fairness’

Last week, politicians put another issue on the 2015 election menu: boosting the Canada Pension Plan. In what was described as a “180 degree turn” or less generously a “flip-flop,” the Conservatives proposed that individuals be allowed to top up their CPP premiums in exchange for higher payouts, an idea the government had rejected three years ago. And they’re not the only ones; the Liberals, who had previously supported a voluntary scheme, now reject it as inadequate.

Why the bipartisan change of heart? Hard not to believe a little election fever might be at work. Polls show eight in 10 Canadians like the idea of fatter retirement paycheques (no kidding: we’re surprised it wasn’t unanimous). Where the NDP and the Liberals had gone, the Tories could scarcely avoid following. All aboard the bigger-CPP bandwagon, then, and damn the policy implications.

And those implications are indeed damning. First, let’s consider the issue of need. If you didn’t listen too closely, the rhetoric around CPP reform would leave you thinking it’s about “helping” those at the bottom to save more for their retirement. But the evidence is clear on this: between Old Age Security, the Guaranteed Income Supplement, and CPP, almost everyone in the bottom half of the income scale wis already set up with sufficient income in their retirement to maintain their current living standards.

That, remember, is what this is about. The CPP is about income replacement, not income support: it’s a contributory program, not a redistributive one. Rather than take from the rich to give to the poor, CPP takes from you now to give to you later: the benefits you receive are linked to the level of your contributions (though, even today, the link is indirect: benefits are still paid, in part, by current workers, rather than the beneficiaries’ own accumulated savings).

A bigger CPP, then, isn’t about “fairness” or “equity” between income groups — low earners would continue to get less in retirement than those who earn more. To the extent their benefits would increase, it is only because their contributions would: an expanded CPP wouldn’t “help” Canadians to save, but force them to. It’s the OAS/GIS that are really designed to help out those in need. As they have, admirably. The proportion of seniors living below Statistics Canada’s Low Income Cut Off (LICO) has fallen from 33 per cent in 1976 to less than 10 per cent today — lower than the general population.

Those who face the biggest potential difficulty in replacing their income in retirement are not the poor, or the population at large, but a small minority of middle and upper-middle class workers who have not been putting enough aside in their working years. We say “potential,” because it’s not always clear why they are not doing so. But whatever the reason, it’s even less clear that the answer is to force them to.

If they are saving about as much as they wish to, it is hard to see how their welfare is enhanced by forcing them to save more. If, on the other hand, the problem is that they cannot afford to save more, that remains the case under an expanded CPP: if they can’t afford to save it, they can no more afford to have the government take it and save it for them.

Perhaps an argument could be made for forcing this small and relatively well-to-do minority to save more. Very well: how does it follow that we should force everyone to? And even if an argument could be made for that, it does not necessarily follow that the CPP is the only or even the most appropriate vehicle — not least given the growing questions surrounding its exploding costs and risky investment policies.

The question politicians should ask themselves is not how to squeeze more money from people’s paycheques, but why aren’t they saving it now? Is it perhaps because taxes take such a massive bite from Canadians’ take-home pay? If so, could Canadians not be induced to save more by taxing them less?

The CPP is supposed to be a contributory program, not a redistributive one