While changes to the Canada Pension Plan (CPP) recently adopted by the current federal Liberal government offer some improvement, they do not go far enough.
The legislation includes an increase to the annual payout from 25 per cent to 33 per cent of pre-retirement earnings. In addition, the maximum amount of income covered by the CPP increases from $54,900 to about $82,700 — once it is fully phased in. However, because the changes do not fully come into effect until 2025, most workers will not have saved enough or contributed a sufficient amount to the CPP and therefore many will be retiring in poverty.
For a government that claims its legislation is fact-based, it has clearly misread the facts.
The facts are:
- Statistics Canada projects that by the year 2026, fully 25 per cent of Canadians will be aged 65 or older.
- Statistics Canada reports that the proportion of the overall employed population covered by registered pension plans declined from 52 per cent to 37 per cent between 1977 and 2011. Evidence suggests this decline has continued through to 2016 as many employers shed defined-benefit pension plans or converted to defined-contribution plans. Some estimates put coverage in current private workplace pension plans in Canada at less than 30 per cent.
- On Sept. 7, 2016, the Canadian Payroll Association released a report that found 58 per cent of workers said debt and a bad economy are the biggest obstacles to saving for retirement. Furthermore, 76 per cent worry they have saved only one-quarter or less of what they feel they will need to retire comfortably.
- A Sept. 9, 2016, study by Innovative Research Group, prepared for the Ontario Security Commission, revealed that over 50 per cent of Canadians do not have any plan for retirement.
In a society such as Canada’s, retirement security is built on the premise that employer-provided workplace pensions provide a significant portion of necessary income replacement. With dwindling employer-sponsored pension plans and inadequate personal savings, it is clear that the present system is not working and needs much more than the proposed changes to the Canadian Pension Plan.
Employer-provided defined-benefit pension plans are being phased out and replaced, if at all, by market-driven defined-contribution plans. In fact, the Canadian government is encouraging this trend by introducing Bill C-27, which enables Crown corporations and federally regulated private-sector employers to back out of defined-benefit pension commitments. Bill C-27 removes employers’ legal requirements to fund plan benefits, which means that benefits could be reduced going forward or even retroactively.
Permanent full-time employment is on the decline and is being replaced with part-time, low-paid contract or precarious employment that generally does not provide pensions. A study released on Jan. 4, 2017 by TD Economics showed that all of the job growth in Canada in 2016 was part-time employment. This is not a new phenomenon. Indeed, the same study by TD Economics showed that the share of full-time employment has been declining since the 1980s and accelerated during the 2008 recession. This trend will only increase as technological change makes increasing numbers of jobs obsolete. Think: driverless cars and trucks, artificial intelligent manufacturing and changes to banking and clerical jobs through automation.
Interest rates, on which much of the future pension income is predicated, are expected to remain low for years to come.
Meangingful action on retirement security
The average Canadian does not qualify for full Canada Pension Plan benefits, but draws usually half the maximum benefit. The drop in permanent full-time employment means that there will be no change in the short term and it’s likely to get worse.
Clearly, the change from 25 per cent to 33 per cent of the CPP’s Yearly Maximum Pensionable Earnings (YMPE), phased in over time, will not adequately address the retirement income needs of Canadians now and in the near future. Using the Low-Income Measure, senior poverty increased from 3.9 per cent in 1995 to 11.5 per cent in 2013 and this is likely to continue unless meaningful action is taken.
We need a national dialogue about the future of work and social programs providing income support for all ages. We could start with free education up to and including college and university. A high school education alone will not prepare our young people for the jobs of the future. Historically, investments in education have led to bursts of innovation and creativity that have driven economic advances. Free primary and secondary education sufficed in the past — it is now time to move that to the next level. Most developed Western economies do this and recently New York Governor Andrew Cuomo advocated free tuition at public colleges to develop the state’s economy.
If part-time precarious work is the future, as Finance Minister Bill Morneau recently indicated, then let’s talk about how we can help people have a decent quality of life in this new economy. A national guaranteed annual income should be part of the solution. I am old enough to know that most people want to excel and do a good job regardless of the endeavour. Countries such as Finland and Scotland are already experimenting with this, and Ontario is thinking about this approach as well.
Perhaps if we begin this discussion and implement some of these strategies we can revisit how retirement income is going to be funded on a secure basis going forward — so that no senior is doomed to end their life in poverty.
Doug Macpherson is the National Coordinator for the Steelworkers Organization of Active Retirees (SOAR) and Vice President of the Congress of Union Retirees of Canada (CURC).
Retiree Matters is a column written by members of the Congress of Union Retirees of Canada (CURC) that explores issues relevant to retirees, senior citizens, their families and their communities. CURC acts as an advocacy organization to ensure that the concerns of union retirees and senior citizens are heard throughout Canada.