Finance ministers from across the country will gather in Kananaskis to discuss whether to expand the Canada Pension Plan (CPP) to address a looming crisis in retirement income.
If CPP is expanded to provide a more stable foundation for retirement security in Canada, it would represent one of our country's most important social policy changes since the introduction of medicare.
It would also be a timely Christmas present for the millions of Canadians who worry about their retirement savings and who have been badly burned by RRSPs and mutual funds.
The big question is this: will the nine provincial finance ministers who support CPP expansion find the courage to make a deal in the public's best interest?
Or will they give in to pressure from Alberta Finance Minister Ted Morton, who, for ideological reasons, has always opposed CPP expansion, and his new ally in opposition, federal Finance Minister Jim Flaherty, who recently withdrew his support for CPP expansion as a result of pressure from Prime Minister Stephen Harper and the private investment industry?
Morton has been all over the media lately trying to downplay the need for change.
He has, for example, been trying to draw attention away from facts like these:
- That even here in wealthy Alberta, half of current seniors have no individual savings at all (that's right . . . zero)
- That only 35 per cent of working Albertans are covered by a workplace pension (and the number is falling each year)
- That only 38 per cent of Albertans made RRSP contributions in 2008 and the average contribution was just $3,200 (hardly enough to build a retirement nest egg).
- That the average fees charged by mutual funds are five times higher than the fees charged by CPP and can eat up between 40 and 60 per cent of an individual's investment earnings (no, that's not a typo)
- That CPP is financially sound and fully portable between jobs . . . but only provides maximum annual benefits of about $11,000 per year (with the average annual payout being only $6,000)
In addition to ignoring the scope of the problem, Morton has also been sowing confusion about what CPP expansion really means.
In particular, he has been deliberately leaving the impression that CPP is a "social program" financed by taxpayers - the implication being that an expanded CPP would be a reward to those who didn't have the foresight to save for themselves, paid for by those who did.
Nothing could be further from the truth. CPP is not a tax-funded program. It is financed by matched contributions from workers and employers.
An expanded CPP would simply mean that workers and employers would be required to put a little more into the system today so that Canadians could get bigger retirement benefits in the future.
In other words, an expanded CPP would provide better opportunities for Canadians to save for themselves (which, by the way, would have the effect of making them less reliant on tax-funded programs).
So, why are Morton and Flaherty opposed to helping Canadians save for themselves?
Sadly, the answer to that question can be boiled down to ideology and self-interest.
Ideologically, Morton is a right-winger who prefers policy solutions that help businessmen put profits in their pockets.
Flaherty is not nearly as rabidly ideological as Morton, but the federal Conservatives are close to Canada's banking and financial industry which has been waging an aggressive lobbying campaign against CPP expansion.
The industry fears that if Canadians are able to invest more of their money through CPP then they'll put less money into things like private mutual funds.
And reduced investment in mutual funds would mean fewer bonuses and fewer and BMWs for bankers and mutual fund managers (heaven forbid!)
The fact that Flaherty has allowed himself to be swayed by the ideology of Morton and the self-interest of the banking community is more than a disappointment - it's a betrayal.
Instead of supporting CPP expansion, Flaherty is now peddling a proposal for "pooled funds," which sounds suspiciously like a plan recently floated by the banking industry. These funds would (surprise, surprise) be run by banks, insurance companies and the mutual fund industry (for a reasonable fee, of course).
Unlike CPP, these new funds would not provide a guaranteed benefit, employers would not be required to make matching contributions (meaning most of them wouldn't) and they would be run by the same private players who have been underperforming and overcharging Canadians for decades.
In other words, these funds would be nothing more than glorified RRSPs - and we've seen how well that's worked for middle-class Canadians.
So, as our finance ministers head into their pivotal meeting in Kananskis, the battle lines have been clearly drawn.
On one side we have Morton, Harper and the banks. On the other side we have nine provinces, dozens of policy experts who endorse CPP expansion and the overwhelming weight of public opinion.
Clearly, the "noble nine" will have to fight hard to put the idea of CPP expansion back on the table as the preferred option.
If they don't, we could end up repeating the scenario that unfolded in 1979 when similar proposals for CPP expansion were scuttled by united opposition from conservative governments in Alberta and Ontario, supported behind the scenes by the big banks and mutual fund companies.
Will Canada's finance ministers stand up and do the right thing this weekend? For the sake of future generations of Canadians, let's hope they decide to make history.
Calgary Herald, Sun Dec 19 2010
Byline: Gil McGowan