Prime Minister Justin Trudeau made a bold election promise to expand and enhance the Canada Pension Plan to provide a more secure retirement for Canadians, but there is skepticism the necessary provincial consensus will be reached when finance ministers gather Monday in Vancouver.
To make changes to the national pension scheme, at least seven provinces representing two-thirds of the country must be onside. The last time this was seriously considered more than five years ago, one participant likened the process to herding cats.
“I’m not particularly optimistic about the outcome” this time around, a person consulting on the process told the Financial Post last week. “The likelihood of sufficient convergence to clear the constitutional threshold is low.”
For evidence that Canada’s regional differences continue to demand cajoling, with no guarantee everyone will agree to come together, one need look no further than the fragmented collection of provinces supporting Ottawa’s plan to create a pan-Canadian securities regulator. It is considered a victory that five out of 13 provinces and territories, including British Columbia and Ontario, have joined that effort.
And even the provinces that have joined forces in that so-called co-operative regulator remain divided on major issues like whether financial advisers should have to abide by a standard that puts a client’s best interest at the forefront of any investment decisions.
“It makes you wonder where your partner is,” a longtime player in the Ontario camp said of B.C.’s surprising opposing position on the adviser-client relationship.
The height of the hurdle that must be cleared to expand Canada’s national pension scheme — a move intended in part to close gaps created by declining personal savings and disappearing workplace defined benefit workplace plans — has seldom been more evident than in 2010.
There were hopeful signs that regional differences would be set aside to ensure all Canadians had adequate savings set aside for their retirement years. But then, warnings about the stability of the economy in some parts of the country, and the impact hiking CPP premiums would have on businesses, were enough to push some provinces and ultimately the federal Conservative government off course.
This happened despite strong early support from Jim Flaherty, who was federal finance minister at the time.
Unexpected and inexplicable changes in the politics of the day across the country tend to “strangle” sound national policy making, even when such policies would serve Canada’s best interests in the long term, says Larry Ritchie, a partner at law firm Osler, Hoskin & Harcourt LLP in Toronto.
“Any inter-jurisdictional legislative initiative such as what is being pursued, no matter how well intentioned, inevitably becomes a struggle since it is always subject (to) the vagaries of immediate politics,” said Ritchie, who was a key player in Flaherty’s push to create a national securities regulator several years ago, around the same time CPP expansion was last seriously considered.
Since the about-face by the Conservatives on CPP in 2010, proponents have suggested that Flaherty never lost his enthusiasm for enacting changes to help Canadians save more for retirement. Rather, they say, it was the prime minister at the time, Stephen Harper, whose view won the day.
Any inter-jurisdictional legislative initiative such as what is being pursued, no matter how well intentioned, inevitably becomes a struggle since it is always subject (to) the vagaries of immediate politics.
This time around, there is no question that the country’s prime minister is in favour of expanding Canada’s national pension scheme to benefit the middle class. Trudeau campaigned on his belief that enhancements are necessary because most private sector workers don’t have a workplace pension to supplement CPP benefits, which top out at 25 per cent of income up to a maximum of $12,000 a year. And this time, the federal finance minister, Bill Morneau, who earlier in his career advised Ontario on pensions, is clearly in lockstep with his boss.
The pair has unabashed support from the government of Ontario, Canada’s most populous province, which has controversially pledged to create a separate pension scheme to “strengthen retirement security for Ontario workers” if agreement cannot be reached on expansion of the CPP.
However, Ontario support is likely to be countered by reluctance in Canada’s west, where the economy, particularly in Alberta, is facing even more challenges than it did five and a half years ago, thanks to the prolonged commodities slump. Observers suggest these provinces would require steep compromise to back universal enrichment of the CPP, such as very small adjustments with a long, gradual phase-in for any improvements. Targeted changes for specific groups of retirees could also be suggested.
Quebec does not appear to support full-scale universal enhancement of the CPP either, which is perhaps not surprising since the province has most strongly embraced private pooled pensions, the compromise offered by the previous Conservative government in Ottawa last time a push for a full-scale CPP expansion failed to take hold.
Scott Clausen, a partner at pension consultant Mercer Canada, said some provinces have made progress filling gaps in pension coverage on their own since CPP expansion failed to gain widespread support in 2010.
“There’s a lot of merit in what the individual provinces are doing, but a CPP expansion would be by far the best option, rather than individual provincial plans,” he said. “You really want something that’s consistent across the provinces and that’s universal.”
Clausen said he’s optimistic some sort of agreement between the federal government and provinces can flow from Monday’s gathering.
However, at a time when reaching consensus is crucial, not everyone even agrees expansion of the national pension scheme is necessary.
Small businesses are circulating petitions with thousands of signatures, and urging politicians to reject the push for CPP enhancements. A recent survey conducted by the Canadian Federation of Independent Business found that two-thirds of business owners feel increased CPP premiums would put pressure on them to freeze or cut salaries. More than one-third said it would force them to lay off employees, according to the CFIB.
Opponents point to commentary from the Fraser Institute, which counters the central argument that Canadians aren’t saving enough on their own.
The think-tank says Canadians have $9.5 trillion in non-pension assets, including stock, bonds, and real estate, and an additional $3.3 trillion in formal pension assets, and has published research that suggests forcing Canadians to pony up more in CPP contributions while they are working will eat into money they would otherwise be setting aside to fund their retirements.