A compromise worth lauding
It’s a strange feature of living in a complex federation like Canada’s that modest, imperfect policy improvements can sometimes seem like — indeed, can be — historic victories. So it is with the intergovernmental deal to expand the Canada Pension Plan reached this week. Perfection, we know well, is elusive in areas of shared responsibility and conflicting interests. Inaction, on the other hand, is all too common.
Yes, the agreement falls short of the doubling of benefits many advocates were calling for. But it far exceeds the outcome that seemed most likely going into Monday’s meeting of finance ministers in Vancouver: another failed attempt to secure adequate pensions for millions of future retirees.
Any update to the program requires the approval of seven provinces representing at least two-thirds of the population. Given that high bar, and the public reluctance of several premiers, there was good reason to doubt that progress would be made.
But, in the end, every province with the exception of Quebec, which will pursue its own plan, and Manitoba, which may yet come on board, agreed to the first CPP expansion in two decades. It’s a modest boost, to be phased in slowly, which nonetheless has the potential to significantly improve the lives of future generations of retirees.
In fact, the plan’s modesty appears to have been the key to achieving consensus. Both employers and employees will be asked to pay slightly higher premiums, which will be introduced over seven years beginning in 2019. The existing plan aims to replace about 25 per cent of income up to a cap of $54,000. Under the new plan, the coverage would be increased to 33 per cent and the cap to $82,700. The payout will be up to 50 per cent higher for most recipients and will yield significant benefits for middle-income earners.
It’s about time. In recent years, economists observed that the growing ranks of middle-income Canadians without a workplace pension were falling through the cracks. While high earners were saving enough and low-earners were protected by other programs, those in the middle were retiring with nowhere near the nest egg or coverage they needed to preserve anything like the sort of lifestyle to which they were accustomed.
Without government action, the problem promised to deform into a crisis. Fewer and fewer workplaces offer traditional pension plans, and more and more workers, especially young ones, face a combination of precarious, low-wage employment and high housing costs that makes saving all but impossible.
Yet the Harper government refused to entertain the idea of expanding the CPP, effectively putting a decade-long moratorium on the subject. The Tories’ view at the time was that higher taxes or premiums meant not only less money in the pockets of employees, but also pressure on employers to reduce wages and cut jobs. These arguments persist to this day despite the fact that the previous increase in contributions in 1997 produced none of the predicted disasters. The Tories offered instead a number of incentives to promote voluntary savings, which for a variety of economic and psychological reasons, did not work. A Bank of Montreal report revealed that fewer than six in 10 Canadians voluntarily contributed to a retirement savings plan in 2014, and even those, on average, invested a paltry $3,700. During the same time, just one in 10 put away the maximum $5,500 in a tax-free savings account.
The failure of these solutions confirmed that the best way to forestall the looming retirement-income crisis was an expanded mandatory pension program. That’s why Ontario Premier Kathleen Wynne vowed in 2014 to go ahead with her own version, the Ontario Registered Retirement Plan, in the face of federal recalcitrance.
But the new deal, achieved through the leadership of a more co-operative federal government, seems to have obviated the need for the provincial program. That’s for the best. While Ontario’s plan offered more generous benefits than the expanded CPP proposal, the resulting fragmentation would have undermined the portability and parity of the pension system. As Ontario Finance Minister Charles Sousa said on Tuesday, “a national solution provides many benefits to Ontarians, including . . . cost effectiveness, while providing coverage to more people.”
Inevitably, questions remain about how these changes will play out and whether they’ve effectively targeted the right people and adequately protected the most vulnerable. But messy and uncertain as it is, the agreement struck in Vancouver promises to become a milestone that will benefit generations of retirees.
Deal struck in Vancouver promises to benefit generations of retirees