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By John Manley, as originally published in iPolitics.
Canadians tend not to brag about our accomplishments, but we can be proud of the fact that our country is one of the best places in the world in which to grow old. The poverty rate among Canadians 65 and older is among the lowest in the industrialized world, and our retirement income system is widely viewed as one of the world’s strongest.
Can we do better? Absolutely. Research by McKinsey & Company, the global management consulting firm, shows that a strong majority of Canadian households are on track to maintain their standard of living in retirement, but that still leaves some gaps. In particular, some middle to higher-income households are not adequately prepared for retirement — either because they do not contribute enough to workplace retirement savings plans or because they lack access to employer-sponsored plans and have below-average personal savings.
Next week, Canada’s finance ministers will meet in Vancouver and pension reform will be high on the agenda. Ontario Premier Kathleen Wynne has been planning to introduce a new provincial retirement savings scheme — the Ontario Retirement Pension Plan (ORPP) — as a supplement to the Canada Pension Plan (CPP). In response, Federal Finance Minister Bill Morneau has been promoting a national retirement savings solution based on enhancing the CPP.
Premier Wynne deserves credit for championing the cause of pension reform; without her efforts, it’s unlikely that the discussions would have progressed this far. However, a targeted national approach clearly makes more sense than an expensive new Ontario-only plan.
When Prime Minister Lester B. Pearson introduced the CPP in 1965, he did so with the conviction that working Canadians should be able to retire in financial security regardless of where in the country they live. Universality is a key tenet of the CPP.
The alternative approach — a patchwork of standalone provincial retirement systems such as the ORPP — would leave some citizens better off than others based solely on geography.
The creation of separate provincial pension plans would also undermine labour mobility. Citizens and employers are already burdened by a variety of interprovincial trade and regulatory barriers. Adding yet another layer of red tape would not help.
On top of that, standalone plans would impose significant additional administrative costs on provinces — costs that likely would translate into reduced returns for pensioners. Why go it alone when the CPP has a solid track record of generating healthy returns?
Still, enhancing the CPP is easier said than done. Any change would require the support of seven provinces representing at least two-thirds of Canada’s population. A number of provincial governments are understandably reluctant to do anything that might significantly increase the cost of labour and therefore weaken an already-fragile economy.
Fortunately, there is a way to improve Canadians’ retirement readiness while minimizing the impact on the economy. The approach that would be in the best interest of all Canadians is one that would enhance savings opportunities for those who are most in need of assistance — without taking money out of the pockets of lower-income Canadians.
This could be accomplished through a modest increase in premiums for Canadians who earn between 50 per cent and 100 per cent of the yearly maximum pensionable earnings under the CPP — in other words, people with incomes of between $27,450 and $54,900. Those who earn less than $27,450 are best helped through Old Age Security and the Guaranteed Income Support. Canadians with incomes higher than $54,900, meanwhile, would benefit from greater access to workplace pension plans that encourage higher savings while respecting individual choice and circumstances.
The challenge of ensuring that Canadians have adequate retirement security is a national problem that requires a national solution. Rather than letting Ontario go it alone, Canada’s provincial governments should come together in support of a plan for all Canadians, one that is specifically designed to help those most in need.