Ten reasons why universal CPP expansion is the best solution for working people
A targeted approach to CPP expansion has been discussed — narrowed to help only middle-income earners, or alternatively, to Canadians without a pension plan at work. This approach falls short of need and fails to recognize the realities of the vast majority of Canadian workers.
Reason #1: Employers are abandoning workplace pensions, and a shrinking minority of Canadians have access to a pension at work. While the number of workers with access to a work-place pension is in decline, the number of employers unable or unwilling to continue sponsoring existing work‑based pension plans are on the rise.
The CPP is the only way in which most workers in Canada routinely save out of employment earnings in order to secure a guaranteed benefit level in retirement.
Reason #2: The shrinking minority that do continue to enjoy an employer-sponsored plan are experiencing benefit level reductions and the loss of plan benefits. In many cases, the inflation-protected CPP will offer them a better benefit than their workplace plan. This is especially the case for the growing number of private-sector workers whose DB plan pensions are being converted to DC and other higher-risk plans. Overall, DB plan membership has fallen over the last decade, while DC plan membership has grown nearly 20%.
Among private-sector workers with a pension plan, the share covered by a DB plan has fallen in half since 2000. Young workers are especially vulnerable to DB-DC plan conversions, as many create a two-tier system of benefits, however young workers would be aided more than any other group from an expanded CPP, due to term earnings.
Reason #3: Creating exceptions for members of specific workplace plans, as the ORPP is doing, will significantly increase the complexity and administrative costs of running the CPP. The Ontario Retirement Pension Plan is a clear example of expensive complexity that results from exemptions and carve-outs. With the ORPP, the comparability test to determine whether or not a plan is exempt will be applied not just at the plan level, but at the level of a subset or class of employee. Changes to the accrual rate (in a DB plan) or contribution level (in the case of a DC plan) will affect whether a plan becomes or remains exempt, further adding to the administrative burden, complexity and cost.
The CPP functions more cost effectively due to its universal design and straight-forward application.
Reason #4: Most low-income earners that would be left out of a targeted expansion of CPP do not remain low-income through their working lives. While the number of workers with access to a work-place pension is in decline, the number of employers unable or unwilling to continue sponsoring existing work-based pension plans are on the rise.
The CPP is the only way in which most workers in Canada routinely save out of employment earnings in order to secure a guaranteed benefit level in retirement.
Reason #5: Low and modest-earning Canadians want to benefit from a higher CPP pension. Everyone has the right to save more through the low-cost CPP and earn a higher benefit. Many workers, especially young workers, want access to a pension at work. Since their employers largely don’t offer one, their only existing option is the CPP.
Reason #6: By excluding low-income earners from an expanded CPP, employers continue to enjoy a free ride on taxpayer-funded benefits. Guaranteed Income Supplement, meant to keep seniors out of poverty, was never intended to support one-third of all seniors in Canada (1.8 million seniors), as it does today. Employers that elect to close their workplace plans or refuse to offer any plan are relying on taxpayers to fund their employees’ incomes in retirement (i.e. GIS).
Instead of free-riding on the public purse, they should be contributing toward their employees’ retirement savings, through an expanded CPP.
Reason #7: Creating exceptions for members of specific workplace plans, as the ORPP is doing, will reduce the portability of the CPP. The ORPP is not fully portable; the ORPP won’t accompany an individual who begins working outside of Ontario or becomes a member of an exempt workplace pension plan. This means less opportunity to continuously build retirement benefits.
Reason #8: A universal expansion of the CPP will help preserve and extend DB plans, which provide the best income security for workers. Most DB plans are already integrated with the CPP. An expanded CPP would give these workplace plans and non-integrated plans that choose to integrate additional options for grappling with funding challenges or improving benefits.
Reason #9: The CPP is cost-effective. Without the excessive management fees found in other retirement savings plans, the CPP keeps up with the cost of living (indexed to inflation) and pays out benefits for life. Canadians will not run the risk of outliving their CPP pension benefits. It is also is protected against the ups and downs of the stock markets, which makes it a secure and predictable source of retirement income.
Reason #10: The CPP is sustainable. The Chief Actuary of Canada, who monitors and reports on the health of the CPP, indicated in his last report that the CPP is well on track to pay benefits, as promised, for the next 75 years.
