No need to expand the Canada Pension Plan: Report

As Ontario Premier Kathleen Wynne clarifies and possibly softens her line on what her government is expecting around Canada Pension Plan reform, a new report from the Fraser Institute suggests expanding the program isn’t necessary. “When you consider the facts, not the rhetoric, it becomes abundantly clear that expanding the CPP is a solution in search of a problem,” Charles Lammam, director of fiscal studies at the Fraser Institute and co-author of the study, said in a release. First of all, the study argues, most Canadians are financially prepared for retirement. It points to the fact that in 2014, Canadians held $7.7 trillion in non-pension assets, such as stocks and real estate, compared to the $3.3 trillion held in pensions. How do I know if I qualify for a pension income tax credit? » The study comes as Wynne said yesterday the Ontario government could accept an enhanced CPP even if it doesn’t meet the same benefit levels as the Ontario Retirement Pension Plan. Finance ministers are meeting in Vancouver next week to see whether they can reach an agreement on enhancement of the CPP and the Quebec Pension Plan, something that would require the approval of seven provinces representing two-thirds of the population. “We’ve said if we can get to, sort of, two-thirds of the value of what we have . . . what we’ve worked up with the Ontario Retirement Pension Plan, that’s one of the metrics that we would look at for a CPP enhancement,” The Canadian Press reported Wynne as saying. Quebec Finance Minister Carlos Leitao also weighed in on Quebec’s position ahead of next week’s meeting. He said the scenarios still on the table include one that would beef up the CPP program across the board and another that would target middle-income earners, The Canadian Press reported. How to keep more benefits with pension income splitting? » According to The Canadian Press, Quebec has concerns about the impact of a broad-based increase to CPP contributions on workers and employers. “We think that there is no crisis regarding public pensions in Canada,” it quoted Leitao as saying. “But yes, we are willing to look at ways to improve the current system. But any such improvement . . . targeted to a certain income group should be relatively modest and put in place gradually.” When it comes to the merits of expanding the CPP, the Fraser Institute study noted pension expert Malcolm Hamilton also argues Canadians contribute more to private pensions than many think. From 1990 to 2012, private contributions to registered retirement savings and registered pension plans increased, as a percentage of employment income, to 14.1 per cent from 7.7 per cent. And for seniors who are struggling economically, CPP expansion won’t help since many never contributed to the plan. For those who have done so, an increase in CPP benefits could trigger clawbacks from other government transfers, the study noted. The study also argues higher CPP contributions won’t increase overall retirement savings because Canadians will put less into RRSPs, tax-free savings accounts and other investments. How to maximize government pensions » The Fraser Institute also suggests administrating the plan is very expensive, with the costs including more than running the Canada Pension Plan Investment Board. While running the CPPIB costs $803 million each year, the entire plan costs $2.9 billion. The study comes amid a flurry of debate about the CPP. According to The Canadian Press, Conservative finance critic Lisa Raitt is questioning the federal government’s push to expand the plan, suggesting it hasn’t shown evidence there would be widespread benefits from the proposals on the table. The Canadian Federation of Independent Business also noted today it had collected more than 50,000 petitions from small-business owners opposed to CPP premium hikes. The Association of Canadian Pension Management has also weighed in recently (PDF) with its proposals for pension reform in Canada. In a recent summary of its proposed changes, it made two main recommendations:

Enhancement to CPP/QPP on earnings between 50 per cent and 100 per cent of the year’s maximum pensionable earnings threshold, with the ability for employers to provide a comparable workplace retirement plan in lieu.
A mandatory workplace retirement savings arrangement for earnings above and up to 150 per cent of the threshold.