Flaherty and Duncan letters signal Ottawa and Ontario co-ordinating pension reforms - Metro US

Flaherty and Duncan letters signal Ottawa and Ontario co-ordinating pension reforms

OTTAWA – Ottawa has jumped onto the pension-reform bandwagon with both feet.

The federal government wants to expand the Canada Pension Plan and relax rules for financial institutions to give them the leeway to offer pension plans to self-employed people, small business and anyone not covered by a corporate plan.

In a letter to his provincial counterparts Thursday, Finance Minister Jim Flaherty finally set out his public-private vision for pension reform.

It lines up neatly with a similar vision put forward by Ontario’s finance minister, Dwight Duncan, also in a letter released Thursday.

Taken together, the united stance of the two key ministers suggests a consensus is in the works, and concrete measures to change the pension system are likely just months away.

“I believe that we should consider a modest, phased-in and fully funded enhancement to defined benefits under the Canada Pension Plan in order to increase savings adequacy in the future,” Flaherty writes.

The expanded CPP should be complemented by changes to federal tax rules and federal and provincial modifications for pension standards, Flaherty said. That way, governments can allow banks and insurance companies the flexibility they need to offer low-cost pension plans to multiple employers, all types of employees, and the self-employed.

Such changes, Flaherty said, “will help enhance retirement savings and pension coverage, without compromising our current system and without passing costs on to future generations.”

Flaherty and Duncan are not signing on to the suggestion from unions and the NDP to double CPP benefits. Rather, they are urging a more gradual approach that would see a smaller increase in both contributions and payments.

The two ministers’ positions have been two years in the making. They wrote their letters to colleagues just three days before federal-provincial meetings in Prince Edward Island on the pension issue.

After holding informal talks of his own, Duncan said he believes the two-pronged approach will serve as the basis for an agreement that could lead to concrete results soon.

“I think a consensus can emerge,” Duncan said.

If provinces and the federal government can agree on broad principles, they could then ask a task force or experts to figure out the technical details, and then implement the reforms fairly quickly, Duncan added.

“Our hope is we can move forward with concrete measures in fairly short order.”

The proposal essentially rules out a voluntary supplementary layer to the CPP — an option favoured by the federal Liberals among others, but criticized for being expensive to set up.

“We think it’s not cost-effective,” Duncan said in the interview.

Momentum for reform had waned considerably.

It built up last year as private-sector pension funds creaked under the weight of poor market returns and an unstable business environment. Several key provinces and all federal political parties recognized that major reforms were necessary to ensure retirees of the future would be able to maintain their standard of living.

But as markets recovered, and some researchers concluded that retirement incomes weren’t in bad shape, fickle political attention turned elsewhere.

Alberta’s announcement in April that it would prefer to study the issue for 10 years rather than embark on a plan to expand the government role seemed like a dead end to the talks.

Now, though, as several provinces and the federal government wrap up previously-promised public consultations, a sense of urgency is taking hold again, insiders say.

“I am concerned that some Canadians may not save enough for their retirement,” Flaherty says. “In my consultations, I heard strong support for the Canada Pension Plan and the central role that it plays in our government-supported retirement income system.”

Similarly, Duncan says he is increasingly concerned that Canadians’ savings are not adequate, especially given the financial losses from the global recession.

Specifically, Ontario wants to see regulatory changes that would encourage financial institutions to offer low-cost retirement options, and allow them to offer plans to the self-employed and small businesses.

Most of these changes would need to be made by provincial governments, and Duncan said he would proceed in the fall regardless of what the provinces decide.

The aim would be to change laws to allow large multi-employer defined contribution pension plans with low overhead costs to offer portable coverage to more Canadians.

“By changing these laws, we can expand the range of people who can set up pension plans, and the range of people who can access them,” he writes.

But the reforms should not be left only to the banks and insurance companies. Government has a major role too, Duncan says.

Provinces and Ottawa need to “seriously consider building on the strengths of the CPP” by gradually increasing retirement benefits, he said. CPP offers the advantage of being secure, indexed to inflation, and portable, he said.

The two-pronged package stand is likely to gain significant support among the provinces, said Keith Ambachtsheer, one of the country’s top pension experts.

“I think there’s the basis of a broad consensus for a broad direction,” he agreed.

He wants to see other finance ministers sign on to the general principles Ontario and Ottawa have outlined, and then kick the matter over to a task force that could figure out exactly how it would work.

By combining a private-sector solution with a moderate public-sector solution, Ontario’s idea would increase coverage and also lower management fees and costs, Ambachtsheer said.

Ontario cites research that shows between a quarter and a third of Canadians aren’t saving enough to retire with the same standard of living they have pre-retirement.

“The politicians are starting to understand the challenges,” added Ken Georgetti, president of the Canadian Labour Congress.

He wants the PEI meeting to produce an immediate increase in the Guaranteed Income Supplement for low-income seniors, an agreement to gradually expand the Canada Pension Plan, and a commitment to improve the security of private-sector pensions.

He ranks his chances of success “pretty good.”(The Canadian Press)

The Canadian Federation for Independent Business has argued vehemently against a doubling of the CPP, saying it would increase payroll taxes and kill jobs.

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