Rest in peace, “big CPP”

The government already does plenty to encourage retirement saving.

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From the February/March 2014 issue of the magazine.

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(Illustration by Sebastien Thibault)

(Illustration by Sebastien Thibault)

There has been much gnashing of teeth over Finance Minister Jim Flaherty’s decision to block the expansion of the Canada Pension Plan into a so-called “Big CPP.” Despite this, a defiant Ontario government—still fresh off the gas plant debacle—says it’s willing to go it alone to introduce a big CPP. Meanwhile, the private sector is understandably relieved, as it doesn’t want to be burdened with even higher payroll taxes.

The argument for keeping the status quo makes sense, since it would cost employers more to “match” any CPP premium increases. And the self-employed who pay 100% of their CPP premiums would be further burdened.

Sure, modest improvements to CPP are welcome—especially for mid- to high-income earners lacking employer defined benefit pension plans. But remember, the government already does plenty to encourage retirement saving.

The Tories created Pooled Registered Pension Plans (PRPPs), which several provinces may launch this year. True, PRPPs act more like RRSPs and defined contribution pensions than the guaranteed defined benefit pensions being abandoned by employers.

But that’s the world we now occupy. Individuals bear more investment risk and must be their own pension managers. Some argue RRSPs and PRPPs have high fees but that’s true only if you’re picking inappropriate investments: there’s no reason you can’t hold low-fee ETFs or index mutual funds, or individual stocks and bonds with no fees beyond trading costs. I’d argue the loss of DB pension plans is a big reason MoneySense exists.

Ottawa also gave us Tax-Free Savings Accounts in 2009. We now have $31,000 contribution room: $62,000 per couple. Retirees can build a nice source of tax-free income from TFSAs without losing two other sources of government-provided retirement income: Old Age Security and (for the poorest), the Guaranteed Income Supplement.

Bottom line: You can lead a horse to water but can’t make it drink. Those who think a Big CPP can save them from themselves should instead engage in another form of saving: doing without some luxuries and putting aside money for a rainy day. Day in and day out, year in and year out.

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