New legislation before Parliament aimed at enhancing certain benefits under the Canada Pension Plan sends a worrying message for the proponents of long-term stability in the CPP, according to a C.D. Howe Institute research note released Thursday.

According to the think tank, Bill C-36 embodies the tension between CPP beneficiaries who typically want richer payouts, and younger contributors who are concerned about the CPP’s sustainability.

“Bill C-36, now making its way through Parliament, would do two things. It would ease access to disability benefits for older participants. And it would give effect to a commitment in the mid-1990s reforms to reflect the cost of future benefit enhancements in the contribution rate right away, rather than passing the bill ahead in time,” the research report notes.

William Robson, president and CEO of the group, points out that the proposed changes would increase the contribution rate required to maintain stability in the CPP to an estimated 9.79%. Although this is still below the legislated rate of 9.9%, the change eats up part of the margin between the previous steady-state rate and the legislated rate that good economic times have created.

“For the CPP, like any pension plan, lean years can follow fat ones,” he says. Less happy but quite realistic demographic, economic and cost assumptions could yield a steady-state rate above 10%, it says. Bad breaks on more than one front could push the rate above 11% or even 12%, Robson points out. “The margin that Bill C-36 would eat into is one that younger Canadians might like to preserve against future shocks.”

The study notes that the, “recent crisis in Canada’s occupational pension plans arose largely because a temporary spell of good fortune that created surpluses in these plans gave rise to overwhelming pressure to enrich benefits and/or cut current contributions. Then, when the normal ups and downs of the economy and financial markets turned against the plans, they ran into deficits. As a result, they must now renege on some of those higher benefits, or impose higher costs on future contributors.”