Source: The Canadian Press

A consensus on how to reform Canada’s retirement-income system is solidifying around the idea of expanding the Canada Pension Plan.

A new research paper by expert Jonathan Kesselman, which compares all the key pension reform proposals on the table, concludes that a bigger CPP, with a mandatory increase in premiums as well as benefits, is the hands-down best choice.

The federal government and many of the provinces are heading in that direction.

And now, noted academic Jack Mintz is embracing the idea.

“If there was some enhancement of CPP, I think I could buy that,” Mintz, who heads the School of Policy Studies at the University of Calgary, said in an interview.

Mintz is known for his skepticism about government meddling in retirement planning. He has championed more flexibility for private-sector solutions. And he wrote a pivotal paper for federal and provincial governments a year ago concluding that Canada’s system was working well and not in need of major reform.

But Mintz now says he recognizes that many Canadians, especially those with low or medium incomes, don’t want to take risks with their money and invest hard-to-find savings in market instruments. He also sees company after company abandoning defined-benefit pension plans for their employees, leaving them vulnerable in their retirement.

“I’m very concerned about this movement away from defined-benefit plans. It’s really important to have that as an option for people,” he said.

Defined-benefit plans guarantee employees a certain level of income upon retirement. Companies shoulder the financial risk.

But with many pension plans running into difficulty over the last few years, companies have been switching to defined-contribution plans, which see employees and employers put aside fixed contributions. The financial risk is shouldered by employees.

Mintz believes smart companies will move back to offering defined-benefit plans, as a way to attract employees in a tight labour force. But governments can’t leave it to chance, Mintz says, and should make sure there is an adequate, national defined-benefit plan for everyone: the Canada Pension Plan.

A “big CPP” is a far better option than other proposals on the table, writes Kesselman, methodically comparing an expanded CPP with options such as more flexibility for financial institutions, and proposals for a voluntary, supplemental layer to the CPP.

A bigger, mandatory CPP would act like a defined-benefit plan for all employees, at low cost and low risk, and it could help end the dependence of low-income seniors on Old Age Security and the Guaranteed Income Supplement, says Kesselman, a professor at Simon Fraser University in Vancouver.

Changes in regulation that would let financial institutions offer more low-cost pension services to small companies, and higher limits on the amount people can save tax-free for retirement, are not adequate by themselves, Kesselman argues.

As for a voluntary supplemental layer to the CPP — the leading contender for reform a year ago, and the proposal still favoured by the federal Liberals — Kesselman argues that only people willing to take risks with their money would participate.

Voluntary plans would offer more choice to investors, but choice is not something Canadians need more of at this point, he says.

“While individual choice is attractive in principle, in practice a significant proportion of Canadian workers are making poor choices in both savings and investment decisions that do not serve their own longer-term best interests.”

Provincial and federal officials are deep in talks about how to expand the CPP in a gradual and modest way. In an update last week, Ontario Finance Minister Dwight Duncan said the debate for now is focused on what “modest” means.

But Alberta is not on side, and Quebec is sitting on the fence. And some provincial governments don’t want to move too fast for fear of imposing higher premiums just as a backlash over the Harmonized Sales Tax heightens.

Kesselman hopes they don’t dither too long, or opt for “baby steps” to appease critics of higher premiums.

In an interview, he warned that a Big CPP would take several years to implement, and 40 years before the benefits are fully felt so governments should take advantage of the momentum they have now.

Otherwise, he said “it would be an opportunity lost.”