Your vote: A better CPP or bigger TFSA, not both

Regardless of political affiliation, most Canadians want expanded pension plan and are satisfied with tax-free savings accounts

A couple of election issues that affect you more than most have barely seen the light of day in this campaign.

True, they’re not as sexy as some others, but the pros and cons of a bigger tax-free savings account (TFSA) limit and the discussion over whether to expand the Canada Pension Plan (CPP) are worth thinking about when you cast your vote.

Based on party platforms, you’re going to get one or the other, but not both. The new $10,000 TFSA limit The TFSA is immensely popular, and for good reason. The late Jim Flaherty called it the “single mostimportant personal savings vehicle since the introduction of the RRSP.”

The Wealthy Barber author David Chilton calls it a totally fantastic savings account.

As of this spring, Canadians had nearly 11 million TFSAs worth $118 billion, according to the Canada Revenue Agency.

The federal budget in May bumped the annual limit to $10,000.

The Liberals, NDP and some economists jumped on the increase, saying it would only benefit those with higher incomes and in the long run it would break the tax system.

An Angus Reid survey released ahead of the French-language leaders’ debate two weeks ago shows the Liberals and NDP are out of touch with voters. Canadians of all stripes like the increase and want to keep it.

The poll found that 67 per cent of Canadians oppose rolling back the limit. By party, NDP supporters like the increase more than Liberals — 63 per cent versus 62 per cent — with Conservative supporters highest at 78 per cent.

Critics argue the increase is a bad idea because the money inside TFSAs is accumulating tax-free. While that’s good for you, it means a growing pool of money is beyond the CRA’s reach, which means less for governments to spend on social programs.

The same argument could have been made of Registered Retirement Savings Plans (RRSPs) when they were introduced 50 years ago. If you had extrapolated maximum use, you might have forecast the plans would break the national bank.

But 50 years later, nobody argues that RRSPs are a bad thing, and about 94 per cent of the contribution room is unused, says the CRA.

Some 88 per cent of available TFSA room was unused as of this spring. So it’s a theoretical liability, but practically one that is unlikely to come due.

In an era of record low savings and increasingly thin pension coverage, isn’t anything that encourages saving a good thing? And if, at some future date, the lost tax revenue becomes too much, we can change the limit. Governments do that sort of thing all the time. Expanding the Canada Pension Plan Canadians want a bigger CPP, and they’re willing to pay for it. So get on with it, they’ve been saying for a decade.

A poll this spring by Forum Research found that 60 per cent of us agreed with the statement that CPP contributions should be increased so benefits can be increased.

Along party lines, 50 per cent of Conservative voters agreed, as did 65 per cent of Liberal supporters. (NDP support was not provided.)

On this issue, the Conservatives are out of touch. For a decade, they have blocked CPP expansion, though this spring they proposed a vague, voluntary plan.

The Liberals and NDP are all for an expansion. Thomas Mulcair says that within six months of forming an NDP government, he would meet with the provinces and come up with a proposal. Liberal Leader Justin Trudeau goes one better, saying he’d be at the table within three months of taking office.

The Conservatives say CPP expansion is too costly at a time of global economic weakness, and would be a new tax on business and individuals.

“What we will not do is reach into the pockets of middle-class Canadians with a mandatory payroll tax like the Liberals and NDP would do,” former federal finance minister Joe Oliver told the House of Commons during Question Period in May.

Oliver hasn’t provided any details of his plan, but it wouldn’t likely have much in common with the CPP.

The CPP works because it is not voluntary. We are forced to contribute, which creates a big pool of money, reduces fees and increases economies of scale. The people running the fund know how much money is coming in and how much they need to generate to pay their obligations. A voluntary plan would be RRSP-like; it would offer a definedcontribution benefit where the return would be up and down based on returns in the stock and bond markets.

Another knock on volunteer plans is that they don’t usually work, because those who tend to need them most may not have the discipline to contribute. Good intentions fall by the wayside in the face of day-to-day needs.

So it’s a tough choice if both issues are important to you. As the Rolling Stones song goes: You can’t always get what you want, but if you try sometimes, you just might find, you get what you need. Adam Mayers writes about investing and personal finance on Tuesdays and Thursdays. Have a question? Reach him at amayers@thestar.ca.

The NDP and Liberals want to roll back the limits on the TFSA, even though over 60 per cent of their supporters like the Conservatives’ increase