According to The Canadian Press, Ottawa and the provinces have agreed to push ahead with a proposal to modestly increase Canada Pension Plan benefits. Finance Minister Jim Flaherty hailed the agreement as a “significant step forward”. He said a majority of provinces are in favour of a gradual increase in CPP benefits. The ministers also agreed that any changes would have to be fully funded. Among the minority who objected is Alberta Finance Minister Ted Morton who said increasing the CPP is not fair for post-baby boomers because they will contribute more to the plan than they will pocket when they retire. He also thinks CPP is a form of payroll tax and it’s a job killer.
The ministers have asked their officials to look at the details of improving the CPP and to complete the work by the fall. What does ‘modest increase’ mean and how will this be achieved? The talks on pension reform, which are two years in the making, gained momentum last week when Ontario backed a plan that would include a moderate, gradual and mandatory expansion of the CPP.
On the flip side, the idea of a modest increase in CPP benefits falls short of what many unions are calling for. The Canadian Labour Congress, for instance, wants benefits doubled. According to the National Union of Public and General Employees union, about one-third of Canadians are retiring with only CPP and Old Age Security, which means they are living on about $17,000 a year.
For those who have long been complaining about a looming CPP crisis with an aging population in this country, this pension reform should be good news. Most economists have concluded that Canadians do not save enough for their retirement. It’s a bit late for boomers to start relying on their CPPs for retirement if they do not have other savings; but it’s never too late to start forcing the post baby-boomers to save more.
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