What Canada Can Teach U.S. About Pensions
An election campaign in Canada could offer Democrats a primer on how to sell a new retirement plan in the U.S. -- and whether it's even worth trying.
Voters in Ontario, Canada's largest province, will decide next month whether to give the current Liberal government another term in office. One of the central issues in the campaign is a Liberal Party proposal for a new mandatory province-wide pension plan for anyone not already covered by a workplace plan, to be paid for jointly by employers and workers. (There would be some exemptions, including the self-employed.)
The Liberal proposal reflects the same economic pressures at play in the U.S. -- the share of people covered by employer plans is falling, private saving isn't making up the difference, and the rising share of elderly residents (including those in poverty) makes the problem increasingly acute. As Bloomberg News's Cecile Gutscher reported this month, more than 35 percent of Ontario households won't have enough savings to maintain their standard of living in retirement, according to one estimate.
In the U.S., those trends have led to a range of proposals, such as President Barack Obama's MyRA accounts for low-income workers and Democratic Senator Tom Harkin's idea for auto-enrolling anybody not already in a retirement plan into one overseen by the government. None would restore the long-standing social contract between worker and employer, in which providing for an employee's retirement is viewed as a shared responsibility.
The Ontario proposal is worth watching because it confronts that issue, giving employers a mandate to contribute to their workers' pensions above and beyond what's already required through the Canadian equivalent of Social Security. The Ontario plan would require workers to contribute 1.9 percent of annual income below C$90,000 ($82,631) and force employers to put up the same.
Conservative opponents call the idea a payroll tax and say it will cost jobs. The Progressive Conservative Party charges that the reason Ontarians aren't saving enough for retirement is that high taxes are hurting businesses and cutting into hiring, so the answer is less taxes, not more. Those are the same arguments that will play out in the U.S. if Democrats ever propose an increase in Social Security -- an idea that so far has been a subject for think tanks, not politicians.
There's no point yet in guessing whether the pension plan will ultimately prove a boon to the Liberals' campaign. The party remains burdened by a scandal last year involving the predecessor to the current premier, and after winning the past three elections it may be hard to sell voters on a fourth term. (Disclosure: I worked for a minister in the Liberal government in 2005 and 2006, and I still count some of the staff members there as friends.)
But whoever wins the campaign, the debate around the pension plan is a test case for the kind of retirement fix that may be necessary in the U.S. If voters in single-payer-health-care, redistribution-isn't-a-dirty-word Canada prove averse to the idea, Democrats would have reason to think twice before pitching it in this country. (Canadian voters' rejection of a carbon tax in 2008 provides a similar cautionary tale for Americans.)
On the other hand, if the plan sells well despite the attacks, it might offer a blueprint for a similar proposal here -- whoever wins the election.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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