Canadian Finance Minister Jim Flaherty and most of his provincial counterparts agreed to look at boosting contributions and benefits for the country’s national public pension system and to increase the role of financial institutions in running pension plans.
“The substantive majority view was that we should proceed,” Flaherty told reporters after a two-day meeting with his provincial counterparts in Charlottetown, Prince Edward Island.
Flaherty said the ministers will consider whether to proceed with “a modest, phased-in and fully funded” increase to the Canada Pension Plan, a mandatory system in which workers and employers contribute, when they meet again in the fall. They will also look at how to give banks and insurance companies more scope in providing pension plans for multiple employers or the self-employed, he said.
The agreement to strengthen the national system comes over the objection of Alberta, and follows a call by the Canadian Labour Congress for the provincial and federal governments to double CPP benefits. A study released last week by Toronto- Dominion Bank showed a significant share of Canadians aren’t saving enough to maintain their standard of living after they retire.
Alberta Finance Minister Ted Morton said his province opposed expanding the Canada Pension Plan because it’s an over-reaction to the need to boost retirement income, and the higher deductions would be a “job killer” payroll tax that puts an unfair burden on future generations.
The proposals can proceed over Alberta’s objections as long as two-thirds of Canada’s provinces, representing two-thirds of the population, are in favor. Quebec Finance Minister Raymond Bachand, from Canada’s second-most populous province, said his government would study the idea, but didn’t say whether he approved.
Flaherty declined to detail the extent of the agreement. Ontario Finance Minister Dwight Duncan, a proponent of expanding the plan, used a golf analogy to describe the process. “We’re on a long par 5 with a lot of hazards but we’re moving the ball forward,” Duncan told reporters. “I’m confident that we’ll get in below par.”
Flaherty told reporters that ministers rejected the idea of a new government-administered voluntary plan, because it would be too expensive to administer, as well as the plan to double benefits, which would provide a 50 percent replacement of income instead of the current 25 percent of up to C$47,200.
“Improving the CPP is positive -- there’s a lot of merit to that approach,” said Toronto-Dominion Bank Chief Economist Craig Alexander. “It’s a good component to a broad strategy,” that should include measures targeted at people who are “at risk” of suffering a drop in income, he said.
Alexander estimated that about 25 percent of future retirees, mostly in the middle of the income distribution, aren’t saving enough to replace 70 percent of their pre-retirement income.
“I give the governments high marks for tackling the issue,” because they’re dealing with a problem that is many decades away, Alexander said, citing the fact that Canada has the fourth lowest poverty rate for seniors among industrialized countries.