If employers are reluctant to offer a workplace pension plan, they should be forced to pay higher Canada Pension Plan (CPP) premiums. The extra money could then be used to pay higher CPP benefits at retirement to workers who do not have a private pension plan.
That’s according to the National Union of Public and General Employees (NUPGE) in Ottawa, which is launching a campaign to change the rules and spur employers to provide pensions.
“I don’t think anybody could argue that having a huge number of retirees existing on $15,000 a year is a good social objective and yet we have no organized incentive for employers to create new pension plans or expand the ones they’ve got,” said Larry Brown, national secretary-treasurer of NUPGE, representing 340,000 public- and private-sector workers.
The proposal makes sense for several reasons, he said. For one, about 60 per cent of the baby boomers who will be retiring over the next 10 years do not have a workplace pension plan. Many also don’t have enough income to put aside retirement savings, so they’re left with CPP and Old Age Security (OAS), which pay about $15,000 a year for the average worker, he said.
Additionally, there is a declining percentage of workers covered by pension plans and very few new pension plans ¬being set up, said Brown. And more employers are moving to defined-contribution plans, which shifts the responsibility and risk to individuals.
Employers that do offer pension plans pay not only CPP premiums but are responsible for administrative costs, funding obligations, pension legislation and reporting and actuarial evaluations.
“Why should an employer assuming the burdens and obligations of providing a pension plan pay the same CPP premiums as employers that do not?” he said. “Employers have a moral obligation to their employees to provide decent pensions but our system does very little to encourage this behaviour… So we think the idea that the employer should help bear the costs to head off that kind of problem is a no-brainer.”
The NUPGE proposal is an attempt to expand the first tier (a state-provided pension) to take the pressure off the second and third tiers (employer-sponsored plans and personal savings), especially for small employers, said David Burke, retirement practice director at Watson Wyatt in Montreal.
“One of the challenges is that it could result in increased costs to smaller employers and they may end up saying we need fewer employees” to accommodate the increased premium, essentially a tax, he said.
Brown recommends doubling the contribution rates for employers that don’t have a private plan to start. But this calculation is flawed, said Burke, because the average baby boomer born in the mid-1950s will be working for maybe another 10 years.
“If that person is going to get double the benefit they’ve been expecting their whole career, which is great, the contributions they’re going to make in the next 10 years are not going to come anywhere close to covering that, so you’ve got a tremendous inter-generational transfer happening. People a lot younger than baby boomers today are going to end up paying for this initial benefit.”
Phasing in the higher CPP premiums might make more sense, said Burke, but that still won’t help the baby boomers.
“I’m not saying the concept is a bad one, I’m saying there’s a lot of issues to the implementation that are really big,” he said. “My personal view is that mandatory (pensions) should be considered only once we’ve exhausted every other avenue and I’m not convinced we have yet in Canada.”
Solutions could include cost-effective group plans or multi-employer plans and more incentives, rather than shifting the responsibility back to the government, he said.
Employers and employees already have to contribute 9.9 per cent of earnings to CPP, said Catherine Swift, chairwoman, president and chief executive officer of the Canadian Federation of Independent Business (CFIB).
“For small firms, already burdened by so many different types of payroll taxes, CPP, EI and so on, if they’re not offering pension plans, and many do, it’s partly because they can’t afford them and very few companies really offer viable pension plans for very small firms — it’s just not a market that is well-served, so they tend to have something like a group RRSP.”
Instead, the CFIB suggests a system where employers and individuals voluntarily contribute to their own account, which is managed by the CPP board.
“It reduces your cost of management hugely, because they’ve got such a big pool,” says Swift in Toronto.
The NUPGE’s kind of “punishment” does not make sense, she said. “That is not the solution. I think there are big carrots we could put out there, not sticks.”
But the NUPGE expects resistance, said Brown.
“So this isn’t an absolute solution but it’s a partial solution and in the absence of a better idea, this one deserves pretty serious consideration.”
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