The business lobby sets its sights on Canadian pension reform

Canadians owe John Manley and Perrin Beatty a debt of gratitude … or do they?

The president and CEO of the Business Council of Canada and the president and CEO of the Canadian Chamber of Commerce have come out in favour of an expansion of the Canada Pension Plan (CPP).

In a jointly authored op-ed submission printed in the National Post, they are urging Canada’s finance ministers to work together to strengthen the program.

But before we get too excited, we should approach this unusual intervention the same way in which we would approach a large parcel wrapped in plain brown paper that suddenly appeared outside the door.

As it turns out, careful examination of their position on pension reform would be a very good idea.

First, it turns out that the primary objective for these business spokespersons is not to expand the Canada Pension Plan but, rather, to derail Ontario’s plans to implement an Ontario Registered Pension Plan (ORPP).

That intention was made crystal clear in the lead paragraph of their op-ed, which laments fragmentation of Canada’s pension system.

Second, the CPP expansion they are talking about is anything but meaningful. They have little to say about how to ensure retirement security for Canadians who live in poverty while they are of working age.

Third, they contend that if there is a real problem in the system, it concerns only middle-income Canadians, so any solution should be targeted to support them.

When you look closely at the data, as noted Canadian economist and statistician Michael Wolfson has done, it is true that the middle-income group is facing a retirement savings crisis in the coming years, but that band is extremely broad — it includes much of the working population.

But it’s not just the size of the target group that is the problem with the suggestion. One of the realities of Canada’s economy is that a person’s relative position in the income distribution can change from year to year — increasingly so as employment becomes less secure.

So, somebody who is not in the target group one year may be in the target group the next year. That’s why we need a broad-based, substantial improvement in Canada’s public pension system along the lines set out in the design of the ORPP.

The current provincial deadlock on CPP expansion could prevent anything meaningful from happening at the national level — an outcome that is exactly what Canada’s business community is betting on.

That would be a travesty, because the current system isn’t working for the majority of Canadians and it is up to Canada’s political leaders to do the right thing. The right thing would be to fix a broken system.

It is a system in which only roughly one in eight workers in the private sector belongs to a defined benefit pension plan — the gold standard of retirement security.

It is a system in which overall workplace pension coverage only came close to 50 per cent of employees in the 1970s and has been trending steadily downwards ever since.

It is a system in which private savings have fallen far short of what is needed to maintain a reasonable standard of living in retirement.

It is a system in which billions of dollars a year leak out of the system into mutual fund and investment management fees, which are the highest fees in the world.

The system, such as it is, has failed. It needs a major overhaul. And if political consensus on meaningful expansion of the CPP is politically impossible, the decent and moderate expansion proposed by Ontario in the ORPP is a very good second best.

That’s not to say the ORPP is perfect, by any means. Under pressure from the financial services industry, the provincial government gave away far too much.

It threw a completely unnecessary bone to the industry by allowing the sponsors of wasteful and inefficient Defined Contribution plans to exempt their employees from ORPP coverage.

That one move fundamentally undermines the key principle of portability that should drive ORPP design and protects a substantial chunk of the multi-billion dollar mutual fund industry cash cow.

And we are still awaiting a decision by the federal government that would facilitate coverage of the self-employed ­— a key ORPP objective.

But these problems can be fixed. They are merely a matter of political will. And even if they are not fixed, the ORPP is light years better than a “do nothing” approach.

And that highlights the real debt of gratitude that Canadians owe these leaders — their intervention has exposed the real goal of Canada’s business elite in pension reform — to stop it in its tracks, or to make it so modest as to be meaningless.

Hugh Mackenzie is a CCPA research associate. Follow him on Twitter @mackhugh

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