Expanding the Canada Pension Plan

The case for expanding benefits under the CPP as a needed response to the crisis of private pensions continues to win expert support – even as the financial industry and small business lobbies continue to fight real pension reform tooth and nail.

The centre-right Institute for Research on Public Policy (IRPP) have published interesting and useful papers by Michael Wolfson – former Assistant Chief Statistician   – and Keith Horner – a former senior department of Finance official – which broadly side with the CPP expansion option as opposed to voluntary Defined Contribution plans like the PRPPs being promoted by the federal government.

Wolfson estimates that under current public and private pension arrangements, fully one half of baby boomer middle income earners born between  1945 and 1970  will face an income shortfall of 25% or more after retirement.

While there are differences in approach between the two, both Wolfson and Horner favour a model of CPP expansion which would combine an increase in the current CPP pension replacement rate below about $48,000 with an increase in the range of income covered by the CPP.  Compared to a simple doubling of the CPP replacement rate, this would generate a smaller CPP increase for those with below average earnings , and a larger increase for those with above average earnings. 

Horner argues that the CPP option will generate larger and more stable investment returns than defined contribution plans, and that mandatory coverage or automatic enrollment are needed to increase retirement savings.

Wolfson’s paper is quite radical, taking issue with the current legislative requirement that any increase to CPP benefits be fully pre-funded.  His basic point is that the pending retirement income  crisis needs solutions which impact much faster than those now on the table.  His take on the issue of inter generational fairness is well worth reading.