Canada to Tackle National Pension Plan
Canada may just get a pension boost. Canadian Finance Minister Jim Flaherty along with many provincial counterparts agreed to consider increasing contributions and benefits for Canada's public pension system as well as beefing up the role of financial institutions in running pension plans.
Despite Alberta's objection to the plan to strengthen the national public pension system, the country may still get a pension boost if two-thirds of Canada's provinces are in favor. Ministers will meet to consider whether to proceed with what Flaherty calls a "modest, phased-in and fully funded" increase to the Canada Pension Plan, a mandatory system to which workers and employers contribute money. The Canadian Labour Congress has asked the provincial and federal governments to double CPP benefits, following a study that reported significant numbers of Canadians aren't saving enough money to maintain their standard of living after retirement.
“The substantive majority view was that we should proceed,” Flaherty said. However, Alberta Finance Minister Ted Morton reported that his province opposed expanding the Canada Pension Plan because it’s an over- reaction to the need to boost retirement income, calling the higher deductions a “job killer” payroll tax that puts an unfair burden on future generations. Quebec Finance Minister Raymond Bachand, representing Canada’s second-most populous province, said his government would study the idea, but didn’t say whether or not he approved. Ontario Finance Minister Dwight Duncan supports the expansion of the Pension Plan.
“We’re on a long par 5 with a lot of hazards but we’re moving the ball forward,” Duncan said. “I’m confident that we’ll get in below par.”
According to Flaherty, ministers have already rejected the idea of a new government-administered voluntary plan because it is viewed as too expensive to administer. They also rejected the plan to double benefits which would provide a 50 percent replacement of income, up from the current 25 percent.
“Improving the CPP is positive -- there’s a lot of merit to that approach,” said Toronto-Dominion Bank Chief Economist Craig Alexander. He called it "a good component to a broad strategy,” that should include measures targeted at people who are at risk of suffering a drop in income. Alexander estimates that about 25 percent of future retirees, mostly in the middle of the income distribution, aren’t saving enough to replace 70 percent of their pre- retirement income. He then praised the Canadian government for tackling a problem that won't rear its head for many decades and pointing out that Canada has the fourth lowest poverty rate for seniors among industrialized countries.
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