Much ado about something

Hey there, time traveller!
This article was published 16/07/2016 (3395 days ago), so information in it may no longer be current.

Manitoba’s premier knows more than a little bit about planning for retirement.

Brian Pallister has a long history on the political scene, but he also spent a fair bit of his life working as a financial planner.

That’s in part what may have influenced the CPP proposals the Manitoba government wanted the feds and other provinces to consider in exchange for recently signing onto the agreement to increase CPP contributions and benefits.

“We’ve entered into the consensus with the other provinces on the basis that we continue to advocate to make the plan not just bigger, but better,” the premier said during a recent interview with the Free Press.

“I’m hopeful we can build on that agreement by the end of the year to build ourselves a plan I would consider significantly better not just 30-plus years from now, but immediately.”

Manitoba had been the lone holdout on proposed changes to expand CPP when eight out of the 10 provinces signed onto the agreement in late June. (Quebec didn’t sign either, but it isn’t part of CPP; it has the Quebec Pension Plan.)

The agreement will increase contributions starting in 2019 with the full premium hikes in place by 2025. First the contribution rate will incrementally rise over five years from 4.95 per cent to 5.95 per cent until 2023. As well, the maximum pensionable income will rise to $70,500 in 2023 with an additional contribution upper limit to $82,700 to be phased in over two years by 2025.

(The contribution rate on the new upper earning limit — income between $70,500 and $82,700 — will be four per cent.)

The calculations are bit murky at this point, but the takeaway is CPP benefit coverage will increase from replacing 25 per cent of your average working income to 33 per cent based on contributions levels starting in 2025.

So, for example, a worker earning an average of $54,900 in 2016 dollars might receive a maximum benefit of about $18,000 in more than three decades from now as opposed to the current $13,110.

Public support for CPP upgrades is high with more than two-thirds of Canadians in favour, according to a recent poll. In Manitoba about six in 10 are in favour.

Consequently, there had been a lot of people questioning why the Manitoba government held out initially.

Some argued the decision was based on ideology, says political science professor Meir Serfaty at Brandon University.

“Brian Pallister, himself previously an investment counsellor and a strong Conservative, believes that individuals should take primary responsibility for their retirement, and that he, therefore, was not likely to be in favour of a Canada-wide effort to expand the CPP,” Serfaty stated in an email.

Or it could be that business — the Progressive Conservative power base — is generally opposed to expansion because it will compel employers to contribute more.

But in “all fairness, Manitoba wasn’t ready to make a decision one way or the other at the time of the ministers conference, coming within a month of the formation of the new government,” Serfaty wrote.

Given the agreement had more than the required seven out of 10 provinces, representing two-thirds of the population, Manitoba had the luxury of holding out.

Somewhat curiously, however, the province held out for three reasonable yet relatively minor proposals. It wanted to see the CPP death benefit indexed to inflation, elimination of the guaranteed income supplement (GIS) clawback for widowed seniors receiving CPP survivor benefits, and that disability and survivor benefits undergo a comprehensive review.

Widely considered reasonable, the suggestions are also minor, making many wonder why they couldn’t be left for some other round of bargaining. After all, CPP is reviewed every three years by the feds and provinces.

But to the premier, opportunity stood at the doorstep. And Manitoba made the best of it getting its suggestions at the very least on the table for discussion when the finance ministers meet again this year (incidentally, CPP’s triennial review).

Yet even Pallister admits Manitoba’s proposals are minor compared with an agreement to increase premiums and benefits. But he is also adamant the three changes have the potential to help seniors sooner than later. The most important of which is the proposed increase to the death benefit, currently $2,500.

“It hasn’t been indexed since it was downsized in 1997,” he said.

“So it’s not nearly as strong as it was in the ’90s because of the erosion that’s happened, and we’re of the mind it should not erode further.”

So after a lot of much ado about… well… something (arguably minor relative to the other proposed changes) Manitoba got what it sought.

What’s also now apparent is the premier is not opposed to the overarching CPP deal.

“We all understand the expanded CPP will benefit millennials in 30 years — that’s clear,” he said. But he is also concerned about what it offers seniors in the near term.

And he’s not alone.

Also in this camp are pension experts such as Doug Runchey.

“You have to be about 25 years old starting in 2025 to be the first group of people to receive the full 33 per cent increase in benefit,” said the former federal civil servant who worked on Canada Pension Plan legislation, regulations and policy.

“It’s good for the kids in high school right now, but it’s close to meaningless for someone who is 50 and thinking of retiring around 2025.”

According to a government backgrounder, a 60-year-old in 2025 will see a modest increase in benefit at age 65 of about $500 a year based on a $50,000 salary.

Yet any move to boost guaranteed retirement income is welcome by those concerned with the financial well-being of pensioners.

“We’re happy it’s a major change in direction,” said Herb John, president of the National Pensioners Association. “People that are seniors today won’t benefit from this, and that’s something that has been missed in the conversation, but this is about their children and grandchildren.”

In the meantime a number of silver-haired folks today could use a little extra help, too.

Poverty rates among seniors are low compared with other developed nations, but they have been climbing from about four per cent 1995 to more than one in 10 in 2013 (the most recent numbers available).

Expanding CPP will help deal with this problem down the line. Pallister hopes more changes based on concerns raised by his government will improve the plan for seniors in the near future.

“These are reasonable, common-sense supplementary enhancements,” he said. “If we don’t pursue these now, we’ll look back and wonder why we didn’t.”

joelschles@gmail.com