During the election campaign last year, in front of a conference organized by the Canadian Association of Retired Persons (CARP), Justin Trudeau made a number of promises to Canadians regarding the Canada Pension Plan (CPP). The most important promise was that an elected Liberal government would “enhance the CPP”, increasing the benefits for retirees. However, after only a few months into their term it appears his government may be wavering.
At a meeting in December with the provincial Finance Ministers, federal Finance Minster Bill Monreau, instead of demonstrating leadership on this issue, called for more study. The reaction from CARP was quick. Vice President Susan Eng stated “All the posturing is really getting old. The federal and Ontario elections were fought and won on this as a major part of the platform. It is well past time to act on ensuring that all Canadians can save adequately for their own retirement.”
Just about everyone agrees that the CPP is a great plan. It is portable from job to job, it is universal, it is indexed to inflation, its administration costs are low, and it is sustainable. Most people also agree that we have a major problem that is going to hit us sooner rather than later. Canadians, for a variety of reasons, are not saving enough for their retirement. 50 % of Canadians aged 55-64, without a workplace pension plan, have less than $3,000 saved for retirement. For people on low incomes, that nest egg shrinks dramatically down to $750. There are expected to be 3.6 million Canadians retiring over the next decade. Unless things change, many of those Canadians will be retiring – not into the golden years but into the poverty years. Already 30% of single retired women live below the poverty line.
There are three streams for people to save for retirement: personal savings, workplace pensions and the Canada Pension Plan. Over the last 10-20 years the first two have been drying up.
In order to save, people have to have the money to save. For most workers, wages, adjusted for inflation, have been stagnant since the late 1980’s. An indication of this is the dramatic rise in household debt. From 2000, when the ratio of debt to income was 110%, it is now up to 164%. The cost of living has risen faster than our wages but we are still trying to maintain the same standard of living as before.
The second stream, workplace pensions, is in even more dire shape. 50 % of all Canadians do not have a workplace pension and in the private sector that jumps to 75%. Even those who have a pension are facing pressures. As outlined in the Sept., 2014 Labour Beat column, most workplace pensions were the superior “defined benefit” pensions. You paid in and at the end of 30-35 years you knew what your pension would be. These pensions are being replaced by “defined contribution” pensions where you know how much you have to pay in but you don’t know how much you will receive as a pension. It depends on how the stock market is doing.
The third stream is the CPP, brought in in 1965 by Lester Pearson’s Liberal government. It is based on equal contributions from the worker and the employer. It is meant to ensure that when you retire you have at least 25% of your pre-retirement income. The average pension is about $640 per month. Of all the streams this is working the best though, as we see when we look at the poverty figures for single women, it is still not good enough. It is also the easiest one to fix.
However, that requires leadership. You would think the federal government would be keen. It is a relatively low cost remedy as it pays for itself and does not come out of the general revenue budget. In addition, the Guaranteed Income Supplement (GIS) which was meant to keep low income pensioners out of poverty now goes to a third of all pensioners, roughly 1.8 million Canadians. The GIS does come out of general taxes. An increase in universal benefits would mean fewer people collecting the GIS.
Thomas Walkom of the Toronto Star wrote “When it comes to their campaign promise to beef up the CPP, the Trudeau Liberals have wimped out.” So why have they “wimped out”?
Leaving aside the sincerity of campaign promises, changes to the contributions to the CPP require the support of seven provinces representing 2/3 of our population. Ontario, Alberta, and the four Atlantic provinces are on board. Quebec, which has its own plan, is at least publicly in agreement. The three opposed are Saskatchewan, the newly elected Conservative government in Manitoba, and BC. Saskatchewan and Manitoba are ideologically opposed to any increases in government programs.
BC’s position as outlined by Finance Minister De Jong is that the economy is too fragile for businesses to absorb any increase in contributions. Premier Clark’s office is staffed by many refugees from the Harper regime and is heavily influenced by the extremist Fraser Institute which opposes public pensions, let alone increases to them. However, let us look at their argument because it is a common one in business circles.
The last time there was a contribution increase was 1997. There were no adverse effects nationally, in fact both profits and the employment numbers increased. Since that time business taxes have dropped considerably.
By law there has to be a three year lead time before any increases to contributions can kick in. So even if a consensus is reached by the end of this year the earliest it would kick in is 2020. That doesn’t preclude the government from phasing the increases in over an even longer period.
These right wing governments will find any excuse to fight increases to social benefits, particularly if it means businesses also have to contribute their share. So we need to let them our MLA’s know we want the BC government to change their position and support the enhancement of the CPP. We also need to message the Government to live up to their promise.
To get more information on the need to improve the CPP and ensure that seniors, and future seniors, can retire with some dignity and financial security, check out the Canadian Labour Congress website at canadianlabour.ca