CPP expansion: a good or bad idea for Canada?

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Expansion of the Canada Pension Plan is being bandied about by politicians this week, spurred by the federal Conservatives’ sudden reversal on the issue.

Stephen Harper’s Conservatives, who have long been against the notion of expanding the plan, reversed course this week by promising to look into the possibility of letting people put more earnings into the program in an effort to pad their retirement nest eggs.

While the Tories shifted toward a possible voluntary increase in CPP contributions, Liberal leader Justin Trudeau said Wednesday his party favours a mandatory expansion of the plan along the lines of what Ontario has adopted. Ontario passed legislation in April to create its own mandatory pension plan for employees who lack a workplace pension.

Critics, among them the federal Conservatives, have called Ontario’s program a “job-killing payroll tax.”

The idea of CPP expansion continues to be debated. Proponents of an expanded plan point to public opinion polls showing three-quarters of Canadians (and more in some polls) indicate a desire for an enhanced CPP. They note that the majority of working Canadians have no pension plan, and say that offering Canadians more options to help them save for retirement aren’t working.

Opponents, among them the Canadian Federation of Independent Business, warn that an expanded CPP would require higher premiums which would in turn hurt the economy and ultimately Canadians.

In November 2013, the Globe and Mail put the issue to a pair of experts. Bill Robson, president and CEO of the C.D. Howe Institute, spoke against an expanded CPP in a column headlined “‘Big CPP’ is at the expense of the young” while Rhys Kesselman, Canada Research Chair in public finance with the School of Public Policy, Simon Fraser University, lauded the idea in his column, “It’s time to expand CPP benefits.”

Robson noted, “Without proper saving, Big CPP is a gamble – and an asymmetrical one. When things go well, as they sometimes will, the old win. When things go wrong, as will also happen, the young lose.”

Kesselman concluded, “Concern over the effects of CPP premium hikes is unwarranted and should not be allowed to block this important policy reform any longer.”

So, which side is right?

The point is well taken that many Canadian workers lack a pension plan to help them set aside savings for retirement. Options such as RRSPs and tax-free savings accounts are available for people to use in building their retirement nest eggs, but they’re of little help to those on the lower end of the income scale who don’t have extra money to sock away.

The suggestion of a voluntary expansion of the CPP might sound like a suitable compromise, but again, that would only benefit those with disposable income not already going toward life’s necessities. And if a mandatory plan did result in job losses and a hit to the economy, it would hurt more Canadians than it would help.

The issue doesn’t appear to have a clear-cut solution. In the meantime, expect the debate to continue.

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