The lines are being drawn between Ottawa and at least one province over how to reform a pension system that will be hard hit as the baby-boom generation moves into retirement.
The federal government is having a difficult time negotiating changes to the Canada Pension Plan with the provinces that would mean higher premiums for Canadians, but also increased benefits. Alberta, for example, is opposed to any increases and feels a private-sector option is preferable.
In an exclusive interview with The Globe and Mail after his meeting with G20 counterparts, Finance Minister Jim Flaherty outlined his expectations for pension reform in advance of his next meeting with provincial finance ministers in December in Kananaskis, Alta.
He played down expectations of a wide-ranging deal on pension reform this fall, acknowledging he’s not sure Ottawa has the support of enough provinces to move ahead with changes to CPP.
“This is not something that will happen quickly,” he said. “We have to first of all agree on where we’re going and make sure everybody’s happy with that. We already have at least one dissenting province and as you know there’s a quota rule in there, and I don’t know what the position of Quebec is.”
Reforming CPP requires the support of two-thirds of the provinces representing two-thirds of Canada’s population.
When Canada’s finance ministers last met in June, Mr. Flaherty announced that government officials had been assigned to hammer out specifics on a pension-reform plan and that the work should be “complete” by their next meeting.
Mr. Flaherty also said at the time that there was consensus – but not unanimity – on the need to bring in “modest” enhancements to CPP benefits that would be paid through higher premiums.
There appeared to be broader agreement at the time on the idea of regulating the private sector to create a new, lower cost, pension option for workers who do not have a pension. It could also be used by small businesses as a way of offering a pension to employees.
Alberta Finance Minister Ted Morton supports this private-sector option, but remains strongly opposed to enhancing the existing CPP.
Mr. Morton told The Globe’s editorial board earlier this month that he fails to understand why broad enhancements to CPP are on the table when several studies have shown the problem of insufficient retirement savings is primarily limited to middle-income earners who work for small private-sector employers.
“So why, when you have a fairly narrowly defined retirement-income problem that needs to be solved, why do you come in with a CPP hike that hits everybody?” he asked rhetorically. “And particularly, why do you do it when we’re trying to come out of a recession and job creation is probably the most important thing governments are doing. In the end, it’s a payroll tax.”
Mr. Flaherty suggested things are moving more quickly toward a joint plan to improve financial literacy among Canadians through education.
Canadian pension expert Keith Ambachtsheer, who warned in September that the talks have fallen behind schedule, has recently offered another update.
In an Oct. 19 note, he writes that based on private discussions with officials in Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, reaching a deal by December remains a challenge.
Mr. Ambachtsheer, the director of the Rotman International Centre for Pension Management, said opinion appears to be coalescing around the idea of paying for benefit enhancements for middle-income earners by increasing the Year’s Maximum Pension Earnings (YMPE), which is currently set at $47,200. Under that scenario, CPP premiums would not increase for those earning less than the maximum, but those earning above the YMPE would pay CPP premiums for a longer period until they hit the new maximum.
“And there are those who continue to argue that ‘don’t fix what isn’t broken,’ and that we should instead focus our attention fully on the ‘private pension innovation’ path,” writes Mr. Ambachtsheer.
“There is increasing recognition that even the ‘raise the YMPE’ path has considerable implementation challenges attached to it.” Questions remain, he said, over how high to raise the YMPE, how to integrate with current [defined benefit] plans, how to test and explain intergenerational fairness and how to deal with serious disappointment by many when they realize that, whatever is done, it will only have major impact decades from now.
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