Posted: Wednesday, 4 August 2010

By Ken Georgetti

Premiers and territorial leaders will meet in Winnipeg from August 4 to 6 and Canadians want them to commit to improving the Canada and Quebec Pension Plans.

There is a pension crisis in Canada. Most of us are not saving enough to live comfortably in retirement. 61.5 per cent of workers (11 million) have no workplace pension and one-third of Canadian workers aged 24-64 have no personal retirement savings whatsoever. A modest increase in CPP contributions would produce thousands of dollars a year in extra retirement benefits for tomorrow's retired workers.

Over the past year thousands of individual Canadians have worked to convince political leaders that the best way to help today’s workers save enough for retirement is by increasing what everybody gets from the CPP. The campaign is paying off. In May, mayors and municipal councillors passed a resolution at the Federation of Canadian Municipalities annual meeting calling for an improved CPP. A majority of Canada’s Finance Ministers who met in Prince Edward Island in June said they also support improving the CPP.

The CPP is a safe, secure and efficient plan. It covers 93% of Canadian workers, is portable from job to job and across provinces, and it keeps up with inflation. The CPP is paid for by workers and their employers and operates independently from, and at no cost to government.

The Canadian Labour Congress proposes that future CPP benefits be doubled based on the number of years in which a worker has made increased contributions. For example, under labour's plan, a 28-year-old worker who makes 37 years of higher contributions until age 65 would receive a CPP pension of about $1,772 a month. Without labour’s plan, the same worker would receive only about $886 a month.

This is first-rate retirement savings at low cost. For a worker earning $47,200 or more per year, the cost to double future CPP benefits would be about 9 cents an hour, or an extra $3.57 a week in each year of a seven year phase-in period we are proposing. For a worker earning $30,000 per year, the cost would be about 6 cents an hour, or $2.27 a week in each year of the phase-in period – about the price of a medium coffee and a doughnut at Tim Hortons.

Now that the facts have won over a majority of the nation's finance ministers, the plan to expand the CPP has come under attack from special interest groups and the financial industry spreading myths about our plan.

Some have said CPP contributions themselves will have to double to achieve a future doubling of benefits. The reality is we can pay for a future doubling of benefits with modest phased-in annual increases in contributions over a seven year period.

A second myth being circulated is that labour’s plan for the CPP is a job-killing tax. The reality is that CPP contributions are not a tax. They are savings - an investment by workers and their employers in a safe pension plan that is sound and highly regarded around the world.

Even so, the evidence shows CPP contributions do not discourage employers from hiring workers. In 1993, when CPP contribution rates were rising to ensure the plan was solid for all future retirees, the national unemployment rate was 11.4%. As the contribution rate rose from 2.5% of pensionable earnings, Canada's unemployment rate fell. In 2003, when the CPP contribution rate reached its current rate of 4.95% the unemployment rate had fallen to 7.6%.

Another myth is that making improvements to the CPP will penalize younger workers because they will have to contribute toward improving benefits for older workers. That is simply not true. Our plan to double future CPP benefits is on a pre-funded, go-forward basis. Benefits would be based on the number of years that a worker has made the increased contributions. Younger workers are the ones who will benefit the most from our plan.

During the past year there has been a thorough debate in Canada on retirement security. There is no excuse for putting off improvements to the Canada Pension Plan. The message of Canadians to their premiers is this – let’s get on with it.