Gambling on the Canada Pension Plan

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Dear Editor:  In mid-December, federal, provincial and territorial finance ministers will gather just outside Ottawa to discuss the major financial issues of the day. And when that discussion rolls around to a proposed expansion of the Canada Pension Plan (CPP), Finance Minister Tom Marshall is expected to express support for some form of hike.

There are a few proposals being promoted on how to expand CPP, ostensibly to benefit middle-income Canadians. The common refrain is that those who earn between $30,000 and $100,000 per year are not saving enough for their retirements. It is true that many Newfoundlanders and Labradorians do not have workplace pension options (65 per cent of small businesses in the province do not offer a retirement savings plan), but there are other options available to address the problem, and Canadian Federation of Independent Business (CFIB) studies show that any variety of CPP expansion would result in job losses and a permanent lowering of wages.

Nonetheless, the Government of Newfoundland and Labrador has recently confirmed its support for CPP expansion. Small businesses in the province strongly disagree. They have told CFIB that the immediate impact of CPP expansion would be salary freezes or cuts, reduced investment in their businesses, reduced hours and lay-offs.

Consider the example of a small business with ten employees earning on average $40,000 per year (or about $20 hour). Currently, the employee pays $1,800 a year in CPP premiums, but with CPP expansion, could end up paying as much as $1,100 more. The employer, meanwhile, could have to pay as much as $1,100 more per employee. This would cost the small business an extra $11,000 a year. The additional cost on the business could mean they don’t hire extra help during busy times, or they might have to cut back on overtime. For larger businesses with more employees, jobs might need to be cut altogether.

Many Newfoundlanders and Labradorians are living paycheque to paycheque as they struggle to make ends meet. Some can’t even make it to the end of the month and are forced to turn to credit. With all of this, plus trying to put away some money for retirement when it is available, how can they be expected to absorb a mandatory increase in CPP, especially if they are among those affected by reduced work hours or job losses? Something will have to give, and most likely it will be retirement savings.

One of the reasons that most small employers don’t offer a pension plan is they are too complicated and expensive to administer. CFIB has long advocated for the implementation of Pooled Registered Pension Plans (PRPPs), a low-cost, administratively efficient and voluntary retirement savings option for small business owners and their employees. CFIB research shows that if the PRPP option is made available to them, nearly 50 per cent of small businesses in Newfoundland and Labrador would consider offering it for their employees.

While CPP is an important part of the retirement savings system, CFIB questions whether all of our retirement eggs should be placed in the CPP basket. It must be remembered that CPP was in such a terrible state in the 1990s that premiums were doubled simply to maintain the fund, with no increase in benefits. There is no guarantee that this will not happen again. Many Newfoundlanders and Labradorians would prefer to keep more control of their own retirement savings, and to that end, PRPPs would certainly be a better option.

The provincial government has the power to implement PRPP legislation, and has yet to do so. At the same time, federal Finance Minister Jim Flaherty has indicated that he will take direction from the provinces and territories on whether to hike CPP, and what that hike would look like.

This puts the Government of Newfoundland and Labrador in a position to have tremendous impact on the future of our retirement savings system.

Our government is gambling on a CPP expansion whose costs will come right away, but whose benefits will not be felt for 40 years. But shouldn’t it protect us from the negative impacts of a CPP increase and instead introduce PRPP legislation to give Newfoundlanders and Labradorians expanded choices for their retirement savings?

Our finance minister will have a big voice on the national stage in December. Let’s hope he speaks for us.

Vaughn Hammond is senior policy analyst for the Canadian Federation of Independent Business in Newfoundland and Labrador. He can be followed on Twitter @cfibnl.

Organizations: Canadian Federation of Independent Business, Pooled Registered Pension Plans, Dear Editor

Geographic location: Newfoundland and Labrador, Canada, Ottawa

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