CPP expansion may not be quick, and it may not be what you expect

Changes would give biggest boost to those between 25 and 45.

Thestar.com
Nov. 11, 2015
By Adam Mayers

Expectations are high that new federal finance minister Bill Morneau will soon get down to the business of expanding the Canada Pension Plan.

As the country’s second-most powerful politician, the rookie MP for Toronto Centre and former CEO of pension and benefits consultant Morneau Shepell has been given the task of fixing Canada’s “retirement crisis”.

But CPP expansion will probably not come quickly, and it may not be what popular wisdom expects it to be. It may be a more targeted, modest expansion of the national plan aimed at the few, not the many. Not everyone needs it, so the changes may be more like the structure of the coming Ontario Retirement Pension Plan. (ORPP)

The Ontario government will launch the ORPP in 2017, aiming it at three million Ontarians who don’t have a company pension. The plan will roll out gradually and will exclude civil servants, employees of companies with their own plans and everyone in the banking sector, because banks are federally regulated.

The province sees those between 25 and 45 as the ones who would benefit the most, and these people will likely be working for small- and medium-sized enterprises. The pay may be good, but retirement saving is left to them.

For whatever reason, they aren’t saving enough, and the ORPP offers a CPP-like benefit at the end of their working life.

Morneau’s Bay St. expertise is one reason he was among a group of advisers who helped the Wynne Liberals shape the ORPP. What they came up with is a targeted plan, rather than a universal one. CPP expansion may take a similar route.

Morneau doesn’t seem to think there’s a retirement crisis, based on a book he co-wrote with Morneau Shepell chief actuary Fred Vettese in 2013. The Real Retirement was refreshing because it made a compelling case for lowering our retirement anxieties. The message was that most of us will be fine in old age.

We will have public supports such as CPP and Old Age Security, our private pensions, other savings and the value of our homes.

Prime Minister Justin Trudeau promised to bring the provinces to the table within 90 days of his election. That’s just two months away - Jan. 17 - and Morneau may provide some details in his pre-Christmas economic update.

When they do gather ’round, it may not be easy for the provinces to reach a consensus, which is why we might end up with something that looks like Ontario’s proposal.

That would be good news for this province, because it could fold its ORPP into “CPP-2”, as Ian Lee, a pension expert and business professor at Carelton University, calls it. Lee is part of a panel at a Toronto pension conference in December and expects slow, grinding CPP talks over the next few years leading to something in time for the next federal election.

“An across-the-board CPP increase? No. It will be something more than zero, but not universal,” Lee predicts.

He sees a small portion of workers benefitting from more CPP, about 20 per cent overall. Some of his thoughts:

• One quarter of working Canadians - 4.5 out of 18 million - have good pensions, he says. They work for the three levels of government, or may be teachers, college and university staff, hospital employees, police or firefighters.
• You can add employees of banks, insurers and other large companies into this group.
• Forcing them to pay more for a better CPP is counterproductive. It takes away spending money that would generate economic activity. It also takes away their choice.
• Another quarter of wealthy workers can take care of themselves. More CPP makes no difference.
• The lowest paid can’t afford to pay more. When they retire now, they receive a combination of CPP, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), which means their modest living standard does not fall in retirement.
  

The potential changes seem to suggest a compromise that will lead to something for some Canadians. As the debate enters the political arena in the new year, anything might happen, but one thing is for sure: Don’t expect anything soon.