PARLIAMENT HILL, Ottawa—Finance Minister Jim Flaherty is in a bind when it comes to pensions.
Flaherty is getting both praise and derision after a recent meeting of Canada’s finance ministers made steps toward a supplementary private pension system. Critics say the private plan is better for banks than pensioners, but supporters say it will keep taxes down and give Canadians a solid retirement option.
After meeting with provincial and territorial finance ministers in Kananaskis, Alberta, on Monday, Flaherty described the talks as “candid, open, and productive.”
Flaherty went into the meetings hoping to expedite a process to enact the pooled registered pension plan (PRPP) model which requires some legislative changes at the provincial and federal levels and came out with a framework to implement the plan.
Banks and insurance companies will administer the voluntary system that many small and medium-sized businesses are hoped to offer to employees. The self-employed can also enroll in the employee-funded plan.
Flaherty had earlier championed a plan to beef up CPP with increased contributions and payments but reversed course in recent weeks, telling reporters that without consensus from the provinces, CPP reform is off the table.
Finance ministers will keep looking at options to improve the CPP but Alberta has taken a hard stance against any move to increase contributions, the key ingredient to fixing projected shortfalls.
Mixed Reactions
The Canadian Taxpayers Federation (CTF) has come out in support of the private model, describing the voluntary system as a better approach than tax hikes needed to reform the CCP.
“At the end of the day the best way for government to help Canadians save would be for them to leave more money in the pockets of taxpayers,” said CTF Federal Director, Kevin Gaudet.
But in a recent statement Ken Georgetti, president of the Canadian Labour Congress, an umbrella organization of Canadian unions, slammed the PRPP, saying the looming pension crisis needs an immediate fix.
“An improved CPP is easily the best way to guarantee retirement security for Canadians,” said Georgetti.
He criticized Flaherty for backing away from CPP reform, a move six provinces pushed for the day before Kanaskis.
“Mr. Flaherty’s idea is, at best, a poor alternative to CPP expansion,” Georgetti said. “Our polling has clearly shown that Canadians see an improved CPP as the best way to go in providing retirement security.”
He said the private option will be a boon to banks who will charge high fees to administer the plans.
Provinces Overrule the Dominion
But the labour leader’s criticism overlooks Flaherty’s inability to do anything with CPP without the support of either Alberta or Quebec.
Alberta’s Conservative government has taken a hard right on pensions and is standing firm against a public solution while Quebec won’t support an expanded CPP without a closer study of the numbers and the impact on the provincial economy.
[xtypo_dropcap]A[/xtypo_dropcap] spokesperson for Quebec finance minister says the Quebec pension system, which operates parallel to CPP, is working well enough and the province is worried about the impact to households and businesses if contributions are increased, especially in the fragile economic climate.
Quebec is also concerned more generous pensions could lead to earlier retirement, a problem for the demographically challenged province.
But with Quebec saying it needs more data about impacts and Alberta staunchly opposed, Flaherty can do little because CPP reform requires the support of two-thirds of the provinces representing two-thirds of the population, just below what he has now.
But outside Alberta and Quebec, several provinces are strong advocates of expanding CPP, while Saskatchewan remains neutral.
Province Against Province
In a joint statement issued on the eve of Kanaskis, British Columbia, Prince Edward Island, Nova Scotia, New Brunswick, Manitoba, and Ontario all called on the feds to keep CPP enhancement on the table.
“Making progress on a moderate expansion of CPP is important for the long-term adequacy of Canada’s retirement income system,” said British Columbia Finance Minister Colin Hansen. “We need to keep moving forward in determining what that expansion should look like.”
These provinces wanted a modest, phased-in, fully funded enhancement to CPP that would be affordable for both employees and their employer. But they also support the pan-Canadian framework Flaherty has proposed, as does Quebec.
Ontario Finance Minister Dwight Duncan has said supporting more private-sector pension options should not be used as a reason to not make progress on CPP.
Election Issue
Flaherty’s move away from CPP reform has left opposition parties with an ideal campaign issue, said Sid Ryan, President of Ontario Federation of Labour (OFL).
Last week, 25 members of his and other labour groups occupied Flaherty’s Whitby, Ont., office for six hours, demanding to speak with the minister, who was in Newfoundland, about pensions. They left peacefully when the office was about to close.
The federation is upset Flaherty reversed plans to expand CPP.
“He promised us over a month ago he would do it,” said Ryan.
“This is the one issue that is uppermost in the minds of Canadians right now, especially those looking toward retirement.”
Ryan said opposition parties now have a “tailor-made” issue in the next election.
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