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Canada Looking to Expand CPP
Bill
Curry of the Globe & Mail reports, Flaherty
seeks support for expanded CPP:
Jim Flaherty is urging the provinces to
support a plan to increase mandatory CPP premiums, but the federal
finance minister has stopped short of endorsing the kind of reform that
some critics say is necessary to ease a growing pension crisis.
Mr. Flaherty faces an uphill battle on Monday, when he wraps up a series
of meetings with provincial finance ministers, during which he must
convince two-thirds of them representing two-thirds of the population to
back his vision of an expanded Canada Pension Plan.
While the Conservative finance minister said it is too soon to
hammer out the details of any changes, he ruled out doubling CPP
benefits, a proposal endorsed by several unions.
He
also rejected a voluntary add-on to the CPP that would essentially
compete with private mutual funds – a central proposal of the federal
Liberal party. “We have a Canada Pension Plan that’s the envy of the
world,” Mr. Flaherty told reporters in Charlottetown Sunday in advance
of meetings in Lakeside that wrap up Monday.
“We reject a
voluntary plan because that would very much disturb the work of the
Canada Pension Plan which operates on a different basis, but the plan
can administer a modest, phased-in increase on the mandatory side.”
Pensions expert Keith Ambachtsheer, the director of the Rotman
International Centre for Pension Management who sat in on many of the
cross-country consultations conducted by the federal government, said
there are two main ways to increase CPP premiums.One is to
increase employer and employee premiums on all earnings up to the CPP’s
yearly limit, which is currently at $47,200. The second option would
be to increase that limit. Mr. Ambachtsheer said he prefers the second
option because it targets middle-income Canadians who aren’t saving
enough and avoids placing too high a burden on workers with low
incomes.
After more than a year of consultations, critics were
beginning to question whether the government was planning to simply let
the debate fizzle as memories of recession-triggered pension losses
faded.
But Mr. Flaherty
surprised many with a letter to his fellow finance ministers last week
siding with “modest,” mandatory premium increases to fund higher
benefits. He said Sunday that the feedback from Canadians was clearly
in favour of some kind of CPP reform.
“If we choose to
do nothing about that, then it’s likely that a group of Canadians – a
minority – will reach retirement age and not have sufficient savings to
take care of themselves in their retirement,” he said, predicting
those struggling retirees would then turn to governments for help. “So
my conclusion is that we should be proactive about this.”
In his letter, Mr. Flaherty also signalled
his support for efforts to encourage the private sector to create large
pension funds that could be used by small businesses and the
self-employed, who make up a large portion of Canadians who do not have
pensions.
Mr. Ambachtsheer said that as long as Ottawa
works to contain costs, private plans could address the CPP’s
shortcomings. “I don’t mind [the private sector] doing it, but they
have to do it at low cost,” he said. “Because historically the cost of
personal RSPs has been too high and everybody recognizes that. So if
we’re going to run these big, collective multi-employer pension plans,
they have to run at low cost.”
Mr.
Flaherty’s proposal won praise from left-leaning union leaders, while
right-leaning politicians and business groups express shock and warn of
job losses.
“This is very disturbing stuff,” Don Kelly,
vice president of the Canadian Federation of Independent Business,
said of the mandatory aspect of Mr. Flaherty’s proposal, which has so
far been supported by Ontario and rejected by Alberta. Mr. Kelly’s
organization sees CPP premiums as another “payroll tax,” in addition to
Employment Insurance premiums, which Ottawa also plans to raise.
“We could see major job losses if payroll taxes go up. All these things
are going to hit – EI, CPP, workers comp, minimum wage [increases] –
all of these things hit the payroll budgets of businesses.”
On
the flip side, union leaders who are in PEI to demonstrate outside the
finance ministers’ meetings found themselves praising the move.
“Flaherty’s an interesting guy I tell you,” said Ken Georgetti, the
President of the Canadian Labour Congress, which has been lobbying hard
on the pension file. “He is a fiscal conservative, but honestly I think
Flaherty gets it, both in terms of the whole economics of pensions,
and the reality of them, but also the politics of it … He’s a very
astute politician.”
I have to give credit to our
Finance Minister and Prime Minister. They understand what's at stake and
are taking the measures to shore up our pension system. It's not a done
deal, and there will be lots to iron out, but at least they're trying
to improve on the status quo. Hopefully, with some tougher governance
rules, Canada will become the pensions leader of the world.
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This article does not explain the issue behind the controversy. Thus, I read the finance minister's proposals and the various reactions in a vacuum and do not understand the underlying problem being addressed.
The "issue" behind this is labour unions have been running a huge advertising campaign, trying to get this exact response from the government.
They spread lies like "you cannot survive on the current CPP" and "RRSPs are too risky". (RRSPs are tax deferred retirement accounts, and can be invested in nearly anything including risk-free GICs).
Why are labour groups pushing this agenda? I guess because:
a) unions can no longer afford the gold-plated pensions that union members expect for their huge dues, and so they want to push more burden onto businesses,
b) unions are trying to make themselves appear more relevant to the public, and/or
c) unions have a burning grudge against businesses and want to stick them with more taxes.
i 100% agree, im not exactly sure what the issues are so i dont know which way to feel.
Dear Mitchman
The controversy is simple: the finance minister of canada wants to raise contributions by businesses and employees to the Canadian Pension Plan. In other words, he is trying to push through a major tax increase.