The initiative, to be called Pooled Registered Pension Plans, is revealed in a letter Flaherty sent to his provincial counterparts in advance of a meeting of finance ministers in Kana naskis on Monday.
The surprise move was welcomed by Alberta, which has long opposed an expansion of the CPP. But it drew conflicting reaction from other quarters -- including those who charge the federal minister has caved to the demands of business -- and set the stage for a vigorous debate among finance ministers next week.
"It's a multi-jurisdictional challenge to get a consensus on the CPP," Flaherty said at a news conference in Ottawa on Thursday. "There are no quick or easy solutions on CPP. Several provinces have concerns that remain unresolved."
It is a significant shift for Flaherty, who just six months ago was touting enhancement of the government-run CPP. Alberta Premier Ed Stelmach. praised his change of heart.
"The fact the federal government has backed off increasing CPP contributions is good news because at this critical stage -- given that we have a fragile economy, businesses are struggling -- it would have been another significant contribution in a tax on behalf of our private sector," Stelmach said, speaking in Calgary.
Alberta Finance Minister Ted Morton, who was unavailable for an interview, said in a news release that Ottawa's previously proposed solution of expanding CPP "was a shotgun approach that would have been ineffective and economically damaging."
He noted that Alberta has been promoting this type of private-sector pension with British Columbia for the past three years.
"The one stumbling block for broader implementation had been a lack of interest in Ottawa," Morton said, suggesting Ottawa's change of heart came from provincial prodding.
In Ottawa, the Liberal and NDP accused Flaherty of failing to show leadership and of buckling to pressure from the business community. Closer to home, Alberta Federation of Labour president Gil McGowan said he believes Ottawa has given in to a lobby effort from those companies that sell financial services to Canadians.
"It's hard to look at this flip-flop as anything other than a huge Christmas present for the banks and the private investment industry," he said.
CPP expansion would give Canadians a lower-cost vehicle for investing retirement savings, compared with private options, McGowan added.
Despite the criticism, Flaherty said his proposal is what's best for the country. Flaherty said it is critical to provide a private pension plan for those workers, and also to encourage people in their 20s, 30s and 40s to start preparing for retirement now.
It is estimated six in 10 Canadian workers in the private sector have no private pension plan. Furthermore, only one-third of Canadians make contributions to RRSPs.
The federal finance minister described his scheme as a major step forward that would spur pension plans to provide more retirement security for Canadians -- especially for those workers who are self-employed or who work for small firms that don't offer pension plans.
Under the proposal, a company could arrange for a regulated financial institution to operate a plan, thereby reducing the cost and complexity for small businesses to participate. Similarly, for self-employed workers, the PRPP would be "accessible" without having a connection to an employer. They would simply have the option to participate in a "large-scale, pooled-pension plan" that is administered by a private-sector financial institution.
Flaherty said he hopes it will be in place within one year. "It's clear that it will work."
At the finance ministers' last annual meeting in June, Flaherty and the provincial treasurers focused on ways to improve the pension system and they are expected to return to the topic next week. At that time, Flaherty said a solid majority of the provincial ministers had endorsed the idea of increasing CPP contributions from employers and employees to boost the value of the benefits when they retire. Flaherty acknowledged at the time that support for the direction was not unanimous. But he then indicated he was optimistic there would be enough provincial backing to make it happen.
But at the news conference Thursday, he signalled this option is on the back burner because of provincial opposition. Changes to the CPP require the support of two-thirds of the provinces and two-thirds of the population.
In recent months, the business community had also strongly complained that an increase in CPP contributions would amount to another tax burden.
Canadian Federation of Independent Business Alberta director Richard Truscott said the CPP proposal would have been acceptable if it simply meant a pension premium increase for employees, and had not included employers still struggling with the economic downturn. Employees should shoulder more of the burden, he said, as it boils down to deferred personal savings.
"For employers, it's simply a payroll tax. There's no net benefit," he said.
Truscott said groups advocating for a CPP premium increase "seriously underestimate the impact on the economy."
In Ontario, the provincial government said that while it also likes the proposed private pension plan, it shouldn't be used as an excuse to drop enhancements of the CPP. Dwight Duncan sent a letter to other provincial treasurers and Flaherty urging them not to give up on enhancing the CPP.
Liberal Leader Michael Ignatieff said Flaherty's move away from the CPP toward a "private option" displays a lack of leadership.
Calgary Herald, Fri Dec 17 2010
Byline: Mark Kennedy and Kelly Cryderman