OK, I want a do-over.
Well, maybe not a do-over, but a do-further.
About two weeks ago, I wrote about changes to the Canada Pension Plan (CPP) that will see people who make $53,900 pay about $81 more a year into the plan — with those who make less paying correspondingly less.
I argued the change was a good thing, because private employers have seen cutting pension plans as a quick way to pay out less and keep more.
My argument was that, in the absence of pension plans, CPP could rightly have a role in picking up the slack.
But after reading some of the business-sector complaints about the increase, I’d like to go further. I’d like to double down — or more.
Because the increase is not just for employees — employers have to match the money. And out in the world of business, there are some hefty complaints about having to do that.
In fact, the arguments go further than simply complaining, with business-supportive op-eds arguing that better pensions through CPP are actually a disincentive to people building up retirement savings.
A column in the Financial Post, written by economists with the right-leaning Fraser Institute, stated, “Instead, higher mandatory CPP contributions will likely result in less private savings in pensions and RRSPs. A 2015 study found that between 1996 and 2004, when CPP contributions were raised from 5.6 to 9.9 per cent, for every $1 increase in CPP premiums, the average Canadian household reduced its private savings by almost $1 because people have a preference for how they split their income between saving and consuming.”
Fair enough — as far as it goes.
The economists also argued that the increased CPP ignores the money saved up in property assets and businesses, and goes on to say that the CPP contributions don’t perform as well as pension and investment funds.
That’s all true — as long as you ignore the fact that every dollar contributed to the CPP by an employee has to be matched by the employer, giving the employee a 100 per cent return the moment they pay their dollar.
Are there better places to put your money? There probably are — if you have that money to invest in the first place. If you don’t? Welcome to a lean, mean retirement.
So, what would I argue differently now?
Employees may well responsibly build up home equity and carve out a portion of their incomes for retirement. That being said, employers have chosen to abrogate their role in retirement benefits.
Two weeks ago, I contended, “That was the time for the federal government to step in and collect considerably larger CPP premiums from both employers and employees — but also more from employers who were stepping away from pension plans to bolster corporate financial results.”
That’s what I want to go back to — and I’d go much further now.
I’d argue that if a private company has a pension plan, it should only have to match an employee’s CPP contributions.
But if a firm decides to opt out of providing any meaningful form of pension for its employees, it should pay double, triple or even quadruple the employees’ CPP contributions.
Why? Because employers are blithely passing on responsibility for retirement to the CPP. Employees may well responsibly build up home equity and carve out a portion of their incomes for retirement. That being said, employers have chosen to abrogate their role in retirement benefits. (And if, as the economists point out, employees would do so much better using RRSPs instead of the CPP, I’m sure we could come up with a rule requiring employers to match their employees’ RRSP contributions, right?)
My suggestion is both carrot and stick.
If companies plan to lean on the federal government to fill the pension gap, they should have to pay more for the privilege.
Russell Wangersky’s column appears in 36 SaltWire newspapers and websites in Atlantic Canada. He can be reached at [email protected] — Twitter: @wangersky
