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A growing number of business and financial sector voices with histories of strong opposition to expanding the Canada Pension Plan have suddenly accepted that our public, not-for-profit, pension system should grow. Their newfound support, however, comes with many caveats. Their strategy now focuses on ensuring any expansion of the CPP is overly narrow and extremely modest.
Various Chambers of Commerce, financial industry lobby groups, and the Canadian Life and Health Insurance Association argue that CPP expansion should: 1) not apply to low-income workers, 2) only apply to some middle-income workers and 3) not be the focus for new saving among higher-income earnings, who, in their view, are presumably better served by the for-profit private pension system. The small number of workers remaining who would be affected would only see a “modest” increase to CPP benefits.
These carve-outs would have significant consequences.
All workers currently participate on an equal basis in the CPP. Adding new exceptions for workers at certain income levels would make it more complicated and costly to operate the plan. More contributions would be used to pay administrative and compliance costs instead of being invested. A simple universal expansion of CPP is the more efficient solution.
Cutting low-income workers out of CPP expansion will also encourage employers to game the system. If new CPP contributions and benefits only applied on earnings above $27,500 as some are suggesting, employers would have yet another incentive to offer lower-wage, lower-hours jobs - keeping total earnings below this threshold would keep payroll costs down. This would lead to a new incentive to split full-time positions into precarious part-time positions. Canada’s governments should not be encouraging precarious employment by building these incentives into the CPP. Canadian workers deserve more good jobs and our governments should be fighting to keep them.
If Finance Ministers are concerned with the retirement prospects of low-income Canadians, CPP expansion should not be carved up. Low-income Canadians would see their retirement incomes rise like others under a bigger CPP. If Finance Ministers are concerned about the impact of the GIS clawback on these workers, they should address that particular mechanism rather than undermine the universal CPP.
Polling shows Canadians of all income levels, including low-income Canadians, strongly support CPP expansion. This federal government clearly campaigned on commitment to expand the CPP without reference to any new caveats.
As the salespeople for many for-profit private retirement products, Canada’s insurance industry has a long track record in lobbying against CPP reform. Canadians pay the highest mutual fund fees in the world in their RRSPs and these companies like it that way.
The insurance industry ran a massive campaign that tried to kill the CPP before it was born in the 1960s. The Canadian labour movement, on the other hand, was rightly skeptical that most workers would be able to achieve a pension plan at work, leading to our call for CPP benefits to be set at a much higher level. A middle ground was ultimately chosen, establishing a public pension plan with overly modest benefits. Political leaders at the time believed workplace pension plans would grow - enough to fill the gap left by the modest CPP. This hasn’t happened, and the basic benefit target of the CPP remains basically the same as when it was established.
Unions pushed for a doubling of CPP benefits in the 1980s,as the private pension system was not working for most Canadian workers. The insurance industry and other business groups successfully quashed CPP expansion, arguing that workplace pension coverage and private savings vehicles would grow and expand over coming decades.
These business groups were proven spectacularly wrong. Workplace pension coverage has been on a decline ever since. It’s no surprise we are facing a retirement crisis.
If we had listened to the insurance industry in the 1960s, we wouldn’t have a CPP today. If we hadn’t listened to them in the 1980s, Canadian baby boomers would be retiring with bigger CPP benefits today, instead of the justified anxiety of the retirement insecurity our failed system has left them with. The picture for their children looks even bleaker - unless something is done today.
Our Finance Ministers should reflect on this history next week as they weigh the latest, flawed advice from the insurance industry about CPP.
The labour movement’s message has been simple for the past 50 years: the CPP works very well in terms of coverage, benefit security and inflation protection. Its only flaw is that its benefits are too modest. It should be expanded for all Canadian workers. Relying too heavily on our private, for-profit retirement system has not and will not work for most Canadians.
Canadians are overwhelmingly behind the simple idea of setting aside a bit more today for a decent and secure retirement. Our Finance Ministers have an obligation to listen to Canadians, and universally expand the CPP.
Mark Hancock is national president of the Canadian Union of Public Employees. Representing over 635,000 members across the country, it is Canada’s largest union.