Hey there, time traveller!
This article was published 18/12/2013 (1080 days ago), so information in it may no longer be current.
Finance Minister Jim Flaherty this week chose procrastination as his preferred approach to Canada's developing pension problem. Ontario and other provinces aim to solve the problem behind his back without waiting for him, but the country will be better served if Ottawa and the provinces agree on one solution and carry it out together.
The problem is that company pensions are gradually disappearing from the Canadian industrial landscape. Regulators have kept inventing new requirements that drive up the costs for employers to offer their employees a pension plan. Company pensions no longer look as secure as they once did. The spectacular 2009 bankruptcy of Nortel Networks left thousands of ex-employees still uncertain, four years later, what will be left of their pension contributions after bond-holders and other claimants pick through the assets.
The proportion of working Canadians with pension coverage has been dropping slowly but steadily since the late 1970s. Most government workers are still covered by pension plans, but three-quarters of private-sector workers are not covered. Private savings have not filled the gap. As a result, a great many of the people who reach retirement age 20 years hence will have nothing but the Old Age Pension and their Canada Pension Plan benefits to finance their late years. For many, that will entail a sharp drop in income upon retirement.
Governments and the pension industry have been debating for several years about whose problem this is and what should be done about it. The favourite options are to expand the government-sponsored Canada Pension Plan for working people or to make a new voluntary non-governmental plan available to employers who want to offer it. Provincial finance ministers, at an Ottawa meeting this week, proposed phasing in expansion of the CPP starting in 2018. Mr. Flaherty told them his government would not start considering such action until the economy gets stronger.
Mr. Flaherty's reasoning seemed weak. A pension plan has to work indefinitely, in good times and in bad. It is not a luxury or an indulgence to be enjoyed briefly during an economic boom. It is a device for setting aside some of today's income in preparation for one's old age. Mr. Flaherty is asking the country to delay pension reform until some unspecified future when there is more money around. That day may never come, but even so the problem of inadequate retirees' incomes will still be there. There will always be some employers begging Mr. Flaherty not to increase their pension contributions.
Mr. Flaherty may get away with procrastination because this is one of those slow-motion train wrecks that will not actually hurt anyone for years to come. But provincial governments that recognize the problem and want to start dealing with it now may find wide support for a second-best solution. That road leads to pension regimes that vary from province to province even more than is already the case. Canadians are better served by a pension system that allows families to move from one part of the country to another without loss of pension.
Provinces have the constitutional power to operate public pension schemes within their own borders. Quebec, Ontario and others intend to create a supplementary plan parallel to the CPP. The federal government should be at the table when these new schemes are written and should be a partner in finding the best solution for Canadians.
Mr. Flaherty should make sure Canada's reformed pension system is cost-effective, transparent and well-administered. He should make sure it allows the widest latitude for Canadians who prefer to make their own arrangements and not rely on the government to do their saving for them. He should recognize the withering away of company pension plans has created a problem and procrastination makes it worse. He should not use his hope for future economic expansion as a pretext for inaction.