Five things about the CPP — and the politics around it

Bill Morneau is talking with the provinces today about changing the CPP. Here’s what you need to know:

Sean Kilpatrick/CP

Sean Kilpatrick/CP

OTTAWA — Finance Minister Bill Morneau meets his provincial and territorial counterparts in Vancouver on Monday and one of the key agenda items is going to be the federal Liberals’ wish to expand the Canada Pension Plan. Here are five things to know about the CPP and the politics around it.

1. The system is designed so that each generation of workers pays for its own retirement. That makes it different from two other income replacement programs for seniors and retirees: old age security (OAS) and the guaranteed income supplement (GIS). Those measures are covered through general tax revenues, meaning that workers today pay taxes to raise the incomes of poorer seniors. Any decisions on the future of the CPP would have a greater effect on younger workers than older workers. Will they pay attention?

2. CPP premiums have only been raised once in the last 20 years. In 1997, finance ministers agreed to a phased-in increase in premiums to ensure one generation of workers wasn’t paying for another generation’s retirement. The argument today is that the CPP should pay more in benefits and help those who aren’t saving enough for retirement. The argument against raising premiums is that it would hit workers’ wallets at a time when governments keep saying the economy is fragile.

Related: CPP reform? Here we go again.

3. Expanding the CPP has come down to one of two scenarios. One would be an across-the-board change that would mean higher benefits and premiums for all workers; the other would target those segments of the population who aren’t saving enough for retirement. Those who aren’t saving enough are the same people the federal Liberals want to help financially: Middle income earners. Research suggest those earning between $55,000 and $75,000 — some studies put the upper limit above $100,000 — are not saving enough for retirement, or don’t have an adequate workplace pension. One study from February 2015 suggested 17 per cent of households were not saving enough for retirement.

4. Not every province has to have the CPP. Quebec has its own version. Saskatchewan has its own pension plan, but the payments are voluntary, acting more like a RRSP. Ontario’s proposed pension plan will be mandatory, unlike Saskatchewan’s, but it is aimed at workers without a private pension, meaning it isn’t universal like the QPP. Could other provinces follow suit in the absence of a deal on CPP? And would the federal government help them along? If the answer to both is yes, it could let everyone claim a political win and move off the political hot seat for now.

Related: Is flexible federalism the best fit for CPP reform? 

5. Changing parts of CPP is more difficult than changing the Constitution. Like the constitutional amending formula, seven out of 10 provinces have to agree to any changes. But a constitutional amendment requires that those seven represent at least half the country’s population. The CPP bar is set at two-thirds of the population. Saskatchewan has already signalled it isn’t interested in a rate increase, but its population is so small — about three per cent of the total — that the federal government won’t worry if they are offside. Ontario is different. It has more than a third of the population, giving it an unofficial veto. The federal government needs Ontario’s help on changes, giving it a strong political voice in talks.


Five things about the CPP — and the politics around it

  1. Well, the myth of infinite growth is up and politicians have to find solutions for an environment where there is almost no growth… Hopefully, first reforms to the way pensions are distributed will lead to more information on the way banking fat cats are sucking up the incomes of average people and direction of wealth redistribution will be reversed from the bottom up to the top down directions, at least for a few decades…

  2. I think the expansion of the CPP is a great idea for many reasons. The current cohort of retireds may well (on average) be doing quite fine partly because there are the low income seniors who are subsidized through GIS on the federal level and through other provincial programs. And partly because many are benefiting from their employer pension plans. Especially public sector union members. These subsidies are paid by the current taxpayer and many new retirees will no longer have an employer sponsored pension plan. (Employer’s no longer need to offer this type of employee benefits to keep their employees happy. Workers are and will be a dime a dozen in the future. Everything will become uberized.) So I support each cohort paying it’s own way. Mitigates the long term risk of government and future taxpayers. Many argue (quite rightlyfully so) that young workers may not have spare monies to put away for their retirement as they have other financial obligations like cell phones, auto insurance, student loans, mortgages, etc. And I say tough! Set new priorities. Many argue that employer’s cannot afford another hit to their bottom line. And I say tough! Set new wage scales. Many private supplier’s of “investment vehicles” argue that they will lose business. And I say tough! You should be targeting the wealthy anyways. As a side benefit the expanded CPP funds can be directed into long term investments that will benefit all Canadians. And their investment management fees are lower!

  3. CPP expansion is a bad idea because it forces the working poor to fund enhanced pensions for the middle and upper middle classes.

    Low income workers are well covered by OAS+GIS+CPP. They won’t see any of the enhanced CPP because it will mean lower GIS. So their increased CPP premiums will go to fund better pensions for the irresponsible middle and upper middle classes.

    Increased CPP premiums (because of the OAS and GIS) acts as a highly regressive tax on the working poor for the benefit of middle and upper middle classes.

    • The “working poor” already fund enhanced pensions for the upper and middle classes. Those fortunate folks are the only ones who can actually afford RRSP contributions … which are funded through staggering tax breaks.

      • Do you not realize that those who make RRSP contributions and have pension plans that are generous will likely not qualify for government old age pension when they retire? They will not require welfare or any other kind of government assistance. The only pension they will get from the government will be CPP. Those who buy RRSP’s and save responsibly for their old age are actually going to save the taxpayers money down the road and they are only diverting the taxes they will pay to a time when they will earn less. As soon as they take the money out, they pay tax on it.

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