It doesn’t require a lot of imagination to picture the discussions that took place amongst the business organizations that signed on to an advertisement that appeared in the Globe and Mail and other newspapers on June 1, 2016 in advance of the finance ministers’ meetings about CPP expansion.
The 14 signatories make for an interesting list. Seven provincial chambers of commerce. Six investment industry organizations. And one other organization, Generation Squeeze, a BC based organization focused on intergenerational equity issues.
The content is really revealing. The word “modest” features prominently. Modest, as in CPP expansion should be targeted to “modest” income individuals, because they’re the ones that have the retirement savings problem. “Modest” to make sure that the employer contributions would be as small as possible – the chambers must have liked that one. “Modest” to leave as much room in the system for the financial services industry to continue to rake in its exorbitant fees from a captive audience.
The problem that CPP expansion is to address is minimized. The ad states that “up to 25% of modest-income Canadians (say above 27,500) are not on track” for retirement income security. That characterization of the issue is way off the mark. The best study done to date on Canadians’ retirement readiness[1] concluded that “half of middle-earning Canadians born between 1945 and 1970 will experience a drop in living standards of at least 25 percent when they retire”, with the savings deficit problem deepening with each five-year birth cohort. This is not a “modest” problem deserving of a “modest” solution. This is a big problem.
The ad goes on to imply that the problem is the fault of these individual Canadians. They are in this position, the ad states, “because they do not save outside of the public system and/or do not have workplace plans”. Of course, it is hard to have a workplace based pension plan if the employer doesn’t offer one. And right now, only one in eight private sector workers is in a defined benefit or target benefit plan, and many of those plans are closed to new entrants. Perhaps the chambers of commerce weren’t keen to mention that.
And with mutual fund fees in Canada – the highest in the world – soaking up 40% or more of individual RRSP savings, it’s not hard to see why private savings for retirement in Canada would be lagging. Presumably, the six investment industry participants in this little exercise wouldn’t have been too keen to mention that either.
So here we are so far. It’s a small problem. It requires only a modest solution. And the fault lies not with the retirement income system but with individual Canadians.
Now we come to the serious horse trading. No need to do anything for people with incomes under the magic $27,500 income level. That lets low-wage employers off the hook – a feature that will make the chambers’ members happy. No need to contribute for low-wage workers,. And for high-income Canadians, there’s a “retirement plan” in the workplace – not a pension plan, but a savings plan – with the fee-income bonanza for the investment industry that would come with it.
And then there’s the coup-de-grace. Wait for it. Widows and orphans. Actually, just low-income elderly widows. I’m not making this up. Point number one in their advocacy platform is a proposal to end the claw-back of Guaranteed Income Supplement (GIS) benefits from surviving spouses (who are statistically more likely to be women). Rather than extending this concern to all all low-income recipients of GIS and CPP, which would be the logical policy response,. It’s always helpful to have the odd elderly widow in your corner.
So it’s all very tidy. A small problem. A modest tightly targeted solution that is inexpensive for employers. And protection for the financial services industry’s cash cow – the savings of individual high-income earners.
But if you look at the proposal from the perspective of actual Canadians rather than of vested business interests, then it looks a whole lot different.
This is not a small problem, confined to a narrow income range. It is a big problem that affects the majority of the population. It is not a problem that is going to be solved by employers and the financial services industry. We have fifty years of experience to show that doesn’t work.
The size of the problem merits a big CPP, not tinkering around the edges.
The “solution” is also completely tone deaf when it comes to the realities of today’s labour market. Exempting the first $27,500 in income certainly helps employers of low-wage and insecurely-employed workers. But it means that part-time workers won’t get any benefit at all – even if they hold multiple part-time jobs. It implicitly assumes that workers earning under $27,500 a year will always earn under the equivalent to $27,500 a year, an assumption that we know is not valid. And that means that the typical worker in the modern labour market who will experience repeated ups and downs in income over a working lifetime will see his or her benefit from the change substantially reduced.
I suppose we should be grateful to the big 13 for clarifying exactly whose interests are advanced by calls for only “modest” and “targeted” CPP expansion – those of employers who have voted with their feet not to take any responsibility for their employees’ retirement income security; and those of the financial services industry, which has failed in delivering income security for anyone other than themselves.
The interests of Canadian employees – most of whom have been poorly served by our failed private-sector-based retirement income system – are best served by a big CPP expansion, with first dollar earnings coverage, coupled with a change in the Guaranteed Income Supplement to protect all CPP benefits – not just those of widows – from the current unfair and extremely regressive claw-back.
That won’t appear in a full-page ad directed to just 14 people. But it’s something the finance ministers should be thinking about before they do the bidding of business and throw millions of Canadians under the retirement income inadequacy bus.
[1] Michael Wolfson, “Projecting the Adequacy of Canadians’ Retirement Incomes”, Institute for Research on Public Policy, No. 17, April 2011.