Business says employers can’t risk guaranteeing pensions, unions push for more contributions to CPP by employers without pensions
Like about 11 million other Canadian workers, Peter Hazlett does not have a formal workplace pension. Instead, the product manager at a small software firm in Richmond Hill, Ont., contributes to a group retirement savings plan his company matches dollar for dollar. He also has a separate family savings plan and has paid into the Canada Pension Plan (CPP) throughout his working life.
But he doesn’t see the pension issue as a “crisis,” as defined by both public sector unions and private sector lobby groups.
“I perceive it as my responsibility to put money aside, so I have something when I retire,” he said. “And I don’t necessarily expect somebody to pay for me to be retired.”
How exactly Hazlett sets aside that money is at the crux of the debate in Canada over pension reform. Should his employer be encouraged to adopt a formal pension plan like those seen in the public sector? Would an expansion of the CPP make pension coverage more accessible and affordable for both workers and employers? Or, are legislative changes necessary to support and encourage the growth of defined contribution (DC) plans, deferred profit sharing plans (DPSPs), group registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs)?
About 40 per cent of Canadian workers have some type of workplace pension but only about one in five are covered by a defined benefit (DB) plan similar to that of the public sector.
Employers can’t risk guaranteeing pensions anymore, said Doug Bruce, director of research at the Canadian Federation of Independent Business (CFIB).
“Are the defined benefit plans in the public sector sustainable?” he said. “Well, they are as long as there are taxpayers around. The private sector doesn’t have the tax base to go to.”
Even DC plans, where an employee shoulders the risk, are unaffordable to many employers, he said. Most businesses employ fewer than five people, so any pension plan poses a challenge. Many small employers pay 30 to 40 cents in payroll taxes — including CPP, employment insurance, provincial taxes and workers’ compensation — for every dollar they contribute toward a group RRSP, said Bruce.
“Right there, there’s a very strong disincentive to go that way,” he said. “If you want to go to an RPP (registered pension plan), it’s very costly for a small employer.”
The CFIB has long criticized public sector pensions, not only for their generosity but because they allow government workers to retire earlier. The average age for retirement is 62 in the private sector and 66 for those who are self-employed. By comparison, many public sector workers leave the job in their late 50s.
But the debate should not be about whether public sector workers have it too good but why everyone doesn’t have a decent pension, said Larry Brown, national secretary-treasurer at the National Union of Public and General Employees (NUPGE).
“We’re not hearing from rank-and-file working people that they want public sector workers to pay some sort of mythical price,” he said. “(Private business) would prefer that pension plans be reduced because they’re, on average, below par.”
NUPGE is proposing employers without workplace pensions pay more into the CPP. Under the plan, if employer A has a plan, it pays the standard premium. If employer B doesn’t, it pays a slightly higher premium.
“So the employee of that second employer can get an even better CPP plan when they retire,” he said.
Meanwhile, the Canadian Labour Congress (CLC) is pushing to expand the CPP, by doubling employee and employer contributions to almost five per cent from the current 1.8 to 4.5 per cent over seven years.
“The answer doesn’t lie in stripping our pensions away. That’s not going to make you any richer in retirement,” said Joel Harden, CLC’s pension specialist. “What will make you richer is if we use the CPP to emulate what (unions) have done. People trust the CPP. It’s a cheque they get in the mail. In the financial crisis, no senior’s CPP was cut by 30 or 40 per cent.”
The proposal to expand the CPP has its critics, including Alex Laurin, a senior policy analyst at the C.D. Howe Institute.
“It eliminates something that’s really important — the ability to accumulate wealth for yourself without being tied to the government,” he said. “Do we want all of our eggs in one basket?”
It is somewhat “disingenuous” to say there are a lot of companies not providing pensions, said Mark Milke, director of research at the Winnipeg-based Frontier Centre for Public Policy (FCPP). They’re being delivered differently to “avoid the GM ‘legacy’ effect” where taxpayers end up paying for guaranteed pensions when there’s a shortfall.
“Businesses that don’t do well go out of business, which is the reason why anyone in the private sector doesn’t want, and shouldn’t want, some sort of guaranteed pension,” he said. “Because it really can’t be guaranteed. Ask Nortel employees about that.”
Public sector pensions should move toward defined contributions over time, to more closely align with the reality of the private sector, said Milke. Both FCPP and the C.D. Howe Institute have also called for increased contribution limits to RRSPs and TFSAs.
“There are ways to save in the private sector,” said Milke. “An entrepreneur at age 29, who’s pushing everything into her business, may not care to contribute to the CPP and be forced to double her contributions for a very meagre return later on.”
Danielle Harder is a Whitby, Ont.-based freelance writer.
