Winnipeg Free Press - PRINT EDITION

How will Canadians retire?

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Canadians were supposed to hear something decisive about the future of the Canadian Pension Plan last week at the annual meeting of the premiers, but other than a few platitudes about the need for reform, the provinces relegated the challenge once again to the backburner.

It won't stay there forever, however, because there is a broad consensus in the country too many Canadians will face a financial crisis when they retire as a result of heavy debt and inadequate savings for retirement. The problem isn't immediate, but it's coming.

Just about every sector in the economy -- unions, banks, business groups, think tanks and seniors' associations -- have weighed in on the problem over the last few years with ideas that, if nothing else, reveal the absence of a consensus on how, or whether, to reform the CPP, or implement a mix of private-sector solutions combined with a system of compulsory saving.

The Canadian Federation of Independent Business, which mainly represents small companies, has been in the forefront of the debate.

Federation president Dan Kelly told the Free Press editorial board his group opposes a plan endorsed by most premiers three years ago. It would increase CPP benefits by 10 percentage points, raise premiums by the same amount, and phase it in over 10 years.

Mr. Kelly says such a program would eventually cost employees and employers $1,100 each in additional premiums, while the self-employed would pay double that amount. He says incomes would decline, while higher labour costs would cause layoffs.

The plan would pick workers' pockets, he says, and leave less disposable income for the purchase of private RRSPs.

He is proposing either a system of voluntary higher payments to CPP by employees and employers, or a system known as Pooled Registered Pension Plans, which have been embraced by B.C., Ontario and Quebec.

Under the pooled plans, workers and employers could invest in a voluntary retirement vehicle that would be portable, simple and cost-effective. They would be similar to defined-contribution plans, except they would be managed independently of government or employers. And because of the large volume of funds, management fees would be low, meaning more money would remain with investors.

The problem with the CFIB plan is it is a weak solution for the scale of the challenge. The idea of voluntary payments into a retirement fund is fine, providing investors have the cash, which too many people do not.

It means large swaths of the population will be no better off than they are today. It does not deal with low-income people or with those who have no pension plan.

But if Mr. Kelly's solution is too weak, other ideas are too strong.

Public-sector unions, for example, have endorsed a plan to gradually double CPP benefits over 40 years, with higher premiums reaching their maximum in just seven years. This plan, which Premier Greg Selinger prefers, would disproportionately benefit younger workers.

It has the virtue of being a long-term plan, but its weakness is similar to the premiers' proposal.

It also seems odd unions that represent workers in the public sector with higher salaries and even higher benefits are worried about the CPP. Or it could be they are worried that unless something is done for private-sector workers, who make up the majority of the workforce, their elite salary and benefits packages will be scaled back as a matter of fairness.

The only thing that is clear is the federal and provincial governments must be more energetic in talking to Canadians about the problem and the range of solutions, rather than sticking their heads in the sand.

The option of doing nothing is a prescription for social and economic chaos, and an acceleration of the growing divide between those who work for governments, and those who toil outside its golden sanctuary.

Editorials are the consensus view of the Winnipeg Free Press’ editorial board, comprising Catherine Mitchell, David O’Brien, Shannon Sampert, and Paul Samyn.

Republished from the Winnipeg Free Press print edition August 3, 2013 A14

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