Job loss scare tactics aren’t helping the Canada Pension Plan debate

How the Conservatives are fudging the numbers

Adrian Wyld/CP

As debate heats up over whether or not it would be a good idea to expand the Canada Pension Plan, lots of different ideas are being kicked around. But here’s one absolutely nobody is proposing: abruptly and dramatically hiking the premiums that companies and their employees must contribute to the CPP, all in one year and without any advance notice.

You might wonder why I bother to mention a crazy idea that isn’t even being discussed. After all, the most recent increase in CPP premiums—a doubling of the contribution rate—was sensibly phased in over six years from 1997 to 2003. That reform was widely touted a big policy success that put the CPP back on a sound footing. You would think any future expansion would be modeled on it. And you would be right.

Yet that’s not the scenario the Department of Finance has been working with as it projects job losses if the CPP was expanded. Kevin Sorenson, the minister of state for finance, and the government’s designated spokesman on the issue, has recently said a CPP proposal floated by Prince Edward Island would “kill between 17,000 and 50,000 jobs,” while the NDP’s plan to eventually double the benefits paid out would “stunt our economic growth and kill up to 70,000 jobs.”

The finance department hasn’t released all the details of the economic modeling it did to generate the numbers Sorenson uses to heap scorn on the PEI and NDP proposals. But, in answer to my questions, the department did provide this telling detail: “In both cases, the increase in contribution rates is assumed to be fully implemented in one year, without prior notification.”

I asked some experts what they thought about the usefulness of modeling a big, jarring hike in CPP premiums, inexplicably imposed without warning. Craig Alexander, TD Bank Group’s chief economist, and the author of an important 2010 report on pension reform, stated the obvious: “I can tell you that if you boosted the CPP contribution rates all in one year, it would probably have a significant impact [on jobs]; if you spread it over five years, the impact is going to be much more incremental.”

Rhys Kesselman, a public finance professor at Simon Fraser University and a prominent advocate of CPP expansion, scoffed and then sketched how a responsibly implemented premium increase might work. The CPP contribution rate is now 9.9 per cent, split equally between employer and employee, on earnings up to $51,100. PEI’s proposal would raise that by about three percentage points. Kesselman said a reasonable plan might phase that in over six years.

“Just thinking of the employer’s side—and that’s where a lot of the expressed concern focuses—that’s a quarter of a percentage point per year, a fraction of the typical annual wage increase, which is around two per cent, sometimes three per cent when the economy is doing better,” he said, adding: “To think that this is going to have a significant impact on employment is total fantasy.”

Still, even a CPP premium increase phased in over several years would have some impact on hiring. What might the yearly hit on jobs really amount to? And how would that change if the period of fractional, annual premium hikes was three years, or five, or seven? How would the overall health of the economy factor in?  It would be helpful if the federal government would use its capacity for sophisticated forecasting to give a comparative sense of the realistic options, rather than just tossing out lines about tens of thousands of lost jobs.

Why the government has shifted lately to Sorenson’s hard line is something of a mystery. As recently as the spring of 2010, Finance Minister Jim Flaherty was solidly in favour of expanding the CPP. He only backed off late that year when Alberta wouldn’t come on side. (Changes to the CPP requires the approval of two-thirds of the provinces with two-thirds of the Canadian population plus the federal government.) And Flaherty recently confirmed that he still thinks CPP expansion might eventually make sense, just not so long as the economy remains too “fragile” to risk increasing a “payroll tax.”

Flaherty will have to make that case to provincial finance ministers when they meet at Meech Lake, near Ottawa in Quebec’s Gatineau Hills, on Monday. Pressure won’t just be coming from little PEI. Charles Sousa, Ontario’s finance minister, will arrive fresh from tabling a motion in the provincial legislature warning that Ontario might go it alone with pension reform if Ottawa keeps dragging its feet.

The need for something to be done seems beyond dispute, although a bigger CPP isn’t necessarily the only attractive solution. “We have a fundamental problem,” says TD Bank Group’s Alexander. “Many Canadians are unlikely to replace their working income adequately when they reach retirement age.” Fewer middle-class Canadians have company pensions than in the past, and many of them don’t save enough on their own. “Canadians are carrying more debt, saving less, starting saving later in life, retiring earlier. The whole life-cycle has gotten compressed,” he says.

Alexander sees a range of possible reforms. His own proposal is for a supplementary public pension plan for any worker whose employer doesn’t provide one. The key, Alexander says, would be making this new supplementary pension “voluntary opt-out,” which means individuals would automatically be enrolled and have to make a decision if they wanted to exit. “At the end of the day, you shouldn’t force people to do things,” Alexander says. “They should have the ability to opt out if they don’t want to participate. But we also know that inertia is an incredible thing. If the default is that you’re in the program, you’ll find very high participation rates.”

Kesselman makes the case for expanding the CPP. He points to the CPP investment board’s impressive record over the past decade for getting a good return on the many billions it invests on behalf of Canadians, even during a rough stretch on financial markets. He also says the plan is now run on a responsible basis when it comes to making sure future generations don’t pay extra to cover the pensions of those who came before them—a problem in the past for the CPP.

He means, for example, that if an expansion was agreed to by Ottawa and the provinces, and premium rates started rising in, for instance, 2015, older workers who made those increased contributions for only a few years before retiring would get only very modestly higher  benefits, whereas younger workers who paid the higher premiums for most of their working lives would gain significantly more when they finally retire.

Unlike Kesselman, Alexander isn’t convinced that a big CPP is the best answer. He leans towards a more targeted approach. But they share a sense of urgency that making policy choices should not be pushed off until some mythical future time when economic growth looks so robust and sustained that everything seems possible.“Progress could be an expanded CPP, it could be a modestly expanded CPP with pooled pension plans, it could be a supplemental CPP for workers who don’t have a pension,” Alexander says. “There are a number of routes. I just want to see progress.”

When Flaherty faces off with his provincial counterparts on Monday, we’ll see if progress is in the cards or not. A good starting point would be an agreement to produce, and very soon, some useful, detailed economic projections based on reasonable assumptions about a range of CPP options that might be seriously considered.




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Job loss scare tactics aren’t helping the Canada Pension Plan debate

  1. Scare tactics? I’m sorry, someone will have to fill me in, I wasn’t able to fully read through this article, why with my having to prepare for the rise in oceans inundating our coastal cities, the great plains turning to a firey desert and mankind generally dying a horrible collective heat induced death…..lest we raise taxes and expand government control ….to lower the Earth’s temperature and all.

    • The left does like to complain about “scare tactics” when the concern is expressed from principles of fiscal restraint.
      Otherwise, we will……ALL DIE!!!!!!!!!!…..if we don’t give more to our benevolent nanny state to cure whatever wild eyed ills the left says she is protecting us from.

      • Did you forget to change your sockpuppet account when replying to yourself? Because that was weird.

        • Weird but with hilarious results

      • “In both cases, the increase in contribution rates is assumed to be fully implemented in one year, without prior notification.”

        That’s what you call concern about fiscal restraint is it? How about bogus and gross mischaracterization? Howzat grab ya?

      • The left is immoral. No morality in mortgaging our futures, our kids and grand kids for governemtn debt to fund governemtn bloat, inflated contracts, union wages, and other expense related unaccountability by government.

        Debt is like an addiction for liberal-socialists and neo-Cons, gets you to discard morals and ethics, gets you to ignore rationality and reality, like a heron addict, just one more debt fix to slowly kill your economic viability.

        No morals in bloated liberal-socialist statism on the grand kids credit card. If Ottawa had morals we would have a balanced budget and lower taxes inside of 30 days. Its all about providing the false perception and get your money.

        • “Which” “Charles” are you replying to?

    • See, some things are scary. Other things aren’t. The wise thing to do is discuss scary things as if they are scary, and non-scary things as if they aren’t scary. If you talk about non-scary things as if they are scary, that is a scare “tactic”.

      The whole world fundamentally changing under our feet in ways that will (are already beginning to) mess up the economy, food production, the whole ecosystem, the world’s coastal cities which is most of them, and so on and so forth . . . that actually is scary. A gradual increase in a tax, resulting in old people facing less poverty and having more purchasing power, is not scary. Talking as if it was, by for instance creating projections that rely on unrealistic assumptions to go negative, is a scare “tactic”–lying to frighten people about something that is not in itself frightening.

  2. Must be the same dpt that crunched the numbers on the ndp carbon tax and came up with 21 billion….hmmm, maybe if it was all to be implemented in just one day.
    Does the CPC have a factory where they keep on turning out these clowns? I know their best selling model to date has been Rob Ford, but really!
    The only question i have is where the self respect of the dpt of finance has got to? Is it reasonable to conclude the politicization of the bureaucracy continues apace?

    • Yep, three choices on our ballot and none that really represent the productive part of Canada that pays for it all.

      No wonder fewer people are working. Pays too much to live off of other peoples money. We do need better choices on the ballot than who gets more of our money.

    • The factory is commonly known as the Fraser Institute. They have branch offices in every post-secondary Business and Management faculty in the country.

      There’s one near you! *ominous chord, accompanied by thunder and lightning*

      • And the Bach D minor Fuge of course.

  3. Hmmm, maybe it was just a glitch, but it looks like someone at macleans is removing comments that are only marginally objectionable. That’s a pity.

  4. I would like to contribute to my CPP beyond the $51,000 level that I’m capped at. I would like to contribute up to the $100,000K salary level….then let me draw the usual 25% max of earnings when I turn 65.

    OR

    I would like to VOLUNTARILY contribute past $51K. The CPP investment board is getting excellent returns for far FAR less than Bay Street is charging to manage money.

    OH- DUH! THAT’s why the elfish freak of a former ambulance chaser doesn’t want to expand the CPP.

    • He wants people as slaves of government state, statism freak.

      People should be allowed to have CPP/EI, employees and employers parts, including employers pensions all go into a LIRA you manage for yourself. That way if like NorTel, they go bankrupt the money is already in your account there can’t be a pension screwing. And in your LIRA, you define your retirement data and not have to wait for a pitiful return at 67.

      But the idea here is to _NOT let you have that freedom to save and do it right, as if they take your economic liberty, encourage run-away debt your then become economic slaves of banks and governments and you will lose.

      Government wants more of your money. They even shafted people after they got their money in raising retirement to 67 and paying less as CPP increases are higher than retirees are getting, as CPP for retired and disabled only goes up 1% yet real inflation is much much higher, the incomes have a lower value.

      But we have big fat government deception working hard to lift more of other peoples money in the illusion that it is in our interest.

      • I THINK you make an interesting point here, however your grammar is so atrocious, I cannot for the life of me fathom what you are trying to say.

        Shame.

    • THAT’s why the elfish freak of a former ambulance chaser

      C’mon Dave, I’m more than a bit surprised to see that kind of crap coming from you…

      • I was having a bad day…..

        • You seem to have recovered…continue on then!

  5. Flaherty will show no interest in the CPP until leprechauns are eligible to contribute and collect.

    • Yep, then they short you on the payout and make you work longer to get a reduced value pension.

      Pomzi fraud scheme really. Only legal as government does it. CPP/EI are in essence, employment taxes with a pitiful return.

  6. Pension security somes from economic growth. Because economic growth is what funds pensions, whether they be old age pensions, CPP, company pension plans, or RRSP’s.

    The current system is pretty good. One third taxpayer backed (old age pensions), one third forced savings threw payroll taxes (CPP), and one third private savings via company pension plans or RRSP’s.

    Economic growth funds all three. There is greater security for me as an individual with this diversity of pension sources.

    Expanding CPP is only endangering a program that is reasonably well-funded. A tripod is more stable than a 2-legged ladder.

    Instead of telling the public that there is a magic bullet, politicians should be hammering home the unpleasant truth that for that last 1/3, they have to save.

    • Homespun analogies are fine if they have any relevance, but really–tripods, ladders? Your spiel would be fine if employment rates were high (they aren’t), if everyone had a company pension (they don’t), if most employment was stable (Nearly all the new jobs created for years now are temporary, part time, contract etc; ie it isn’t), generally if the people we’re trying to protect had opportunities to save (they don’t).
      So to return to silly analogies, a ladder is more stable than a tripod missing one leg.

  7. >He also says the plan is now run on a responsible basis when it comes to
    making sure future generations don’t pay extra to cover the pensions of
    those who came before them—a problem in the past for the CPP.

    Unless this principle is rigidly and absolutely respected, there should be no expansion. In view of the debt overhang older generations have created, it is profoundly unacceptable for any older generation to obtain any more money from any younger generation.

  8. Why couldn’t we allow individuals to choose whether to contribute over and above to their CPP, to allow them to get more when they retire, or to their RSP (or a combination of both?

    • Because they ain’t got the money. Next question?

      • If they are contributing to their RRSP, why couldn’t they contribute to the CPP instead?

        • I think the problem is that most people aren’t contributing to their RRSPs either. If you’ve got thousands of dollars to spare that you can throw into RRSPs at the end of every year, you probably aren’t the type of person that this program is aimed at.

  9. When I retired in 1976 my total contributions to CPP had been $1200. I now get annual CPP payments of $4000! The current proposals could end up as a way for baby boomers to screw the younger generations.

    • You ignore some reality with that. First, employers contributed as well. Second, that was in 1976 value dollars not 2013 dollars, that has 37 years of contributions and investment/inflation growth you don’t factor in.

      Imagine if I bought $35,000 of gold in 1971 and today it would be worth $1,300,000. People need to stop thinking of money as having immutable value, as there is a lot of fraud in inflation that makes money a pathetically poor investment.

      So given what you contributed you might get $13k/year from CPP…you got ripped off huge. As if for 37 years I took the CPP employees+employers part and invested it I would be paying out a lot more than CPP and pay you at 55 and not 67.

  10. Pooled plans are pooled scams be they public, private ot CPP.

    You want your pensions in your name/acount/control where MERs, fees, government malfeasances don’t ruin the value/yield and lose value for you. Also, you can chose when to retire if its in your name/account/control.

    And when you die, your spouse/estate gets the value without the cuts or lose of benefits.

    Pooled plans are pooled scams. The idea is to do as CPP does, get your money then change the rules with lower payouts and lower value money while the Ottawa hogs live well.

  11. Because I took the approach that my retirement had to be in my name/account/control I could define when I retire and leave 100% value to my spouse and estate upon death. I even had no vesting rules as it was instantly vested when I put it in my TFSA/RRSP/LIRA/LIF/IRA…..

    You bet I have control, and I defined my retirement date, no need to wait like slave for retirement 67 and less money when I can have more money and retire 54.

    But then Flaherty is about deception, they want your money to pay for past Ottawa mistakes and CPP mismanagement. Now they want you to pay more for less, shafting seniors, disabled and vets with below inflation increases to diminishing value.

    But hey, Ottawa is about deception. Don’t expect Flaherty to tell the truth. People get ahead because they ignore government propaganda and bank advice.

    Sorry Flaherty, you have my tax compliance but not my brain.

  12. “The need for something to be done seems beyond dispute”

    What a ridiculous statement.

  13. Had the opportunity to listen to a segment on this subject on The Current as I was stuck in traffic (Monday morning in Mtl after a snowstorm yesterday . . . ) and Kevin Sorenson was interviewed.

    It is just mind-boggling that he is a point man for anything, let alone CPP. He just tossed out all kinds of phony scenarios buttressed with data that consisted of a sprinkling of anecdotes . . . people are talking about making long-term changes or adjustments and he is focused on the fragility of our economy today (even though he touted how well we weathered the recession).

  14. From my vantage point we need a pension to be a treaty. It seems treaty richness is over the top on the backs of starving and aged taxpayers. Government gold-plated pension should be on the table here to rectify this misgiving as though perhaps it’s their fault. It seems the only language our politicians understand with respect to our taxes has to do with a treaty or less fortunate people of other countries. Time the 50+ crowd get a real voice and decide on a governments future …… not just future governments..

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