The Justin Trudeau government has declared a pension crisis, and is imposing its solution.
After the Ontario government threatened to press ahead with its own Quebec-style provincial pension plan, the Ottawa head office of the Liberal Party stepped in. Finance Minister Bill Morneau called a meeting of provincial ministers in June, and they lined up to support his intention to expand the starting in 2019.
Perhaps still haunted by the leap to the harmonized sales tax, B.C. Finance Minister Mike de Jong broke from the herd ever so slightly, declaring a consultation period first. Premier Christy Clark hinted that this was a formality, since she is focused on cordial relations with Ottawa. B.C.B次元官网网址檚 rubber stamp could come any day.
MorneauB次元官网网址檚 CPP expansion plan sounds quite modest. Employer and employee payroll contributions are to go up from the current 4.95 per cent of earnings to 5.95 per cent by 2023. For each employee earning $54,900, the employer contribution goes up $7 to $8 per month in each of the first five years of the phase-in.
The goal is that by 2025, CPP will cover a third of earnings rather than a quarter as it does today.
Morneau is concerned about the decline in private pension plans, and sees it as the stateB次元官网网址檚 job to step in. The days of bond investments earning seven per cent interest are gone, and even public sector employers are starting to look at defined-contribution pension plans where the payout depends on investment returns.
(See the horrified response of the post office union to the idea that a guaranteed pension isnB次元官网网址檛 their God-given right.)
For private sector employees, defined-benefit pensions are mostly a distant memory, if they have an employer pension at all. Many join self-employed people who are expected to manage their own RRSPs and tax-free savings accounts, which were curtailed by the incoming Trudeau government.
The Liberal philosophy is to discourage individual responsibility and increase state control.
De Jong gave an upbeat assessment of B.C.B次元官网网址檚 public sector pensions in his recent report on the public accounts. Unlike basket-case provinces such as Quebec (50 per cent unfunded liability) and Alberta (76 per cent unfunded), B.C. is 97 per cent funded.
The B.C. teachersB次元官网网址� pension plan has an unfunded liability of $244 million, which is projected to be covered by 2019 through increased employee and employer contributions. Of course the employers are school districts, funded by taxpayers. B.C.B次元官网网址檚 municipal pension plan also has an unfunded liability.
So if you are a self-employed person trying to sock away retirement funds on your own, you can be comforted by the fact that youB次元官网网址檒l be chipping in a bit extra for teachers and municipal employees to maintain their guaranteed pensions.
And if youB次元官网网址檙e a small business owner, youB次元官网网址檙e looking at an extra $40 a month for each employee for CPP. According to a survey released last week by the Canadian Federation of Independent Business, some employers will have to forgo other benefits. Some expect to freeze or even cut wages. Some expect layoffs.
The CFIB survey found low public awareness of all of this. Polling company Ipsos found almost 40 per cent of Canadians think the government pays for part of CPP. More than 70 per cent are unaware that current retirees get nothing from the CPP expansion.
The Fraser Institute ran the numbers on CPP deductions compared to MorneauB次元官网网址檚 middle class tax cut. When the CPP expansion is done, that $54,900-a-year employee will see a net decrease of $374 in take-home pay.
Tom Fletcher is B.C. legislature reporter and columnist for Black Press. Email: tfletcher@blackpress.ca Twitter:
