In late April the federal government released their Spring Economic Update, a mini- budget of sorts.
The update added some $37.5 billion in net new spending, most prominently the creation of the new Canada Strong Fund. A sovereign wealth fund, created to invest in strategic infrastructure projects to drive economic growth. $25 billion will be borrowed by the government as an initial contribution to the fund.
The economic update also provides new money for skilled trades and for affordable housing.
Under the guise of the “affordability crisis” was a little reported move to reduce Canada Pension Plan (CPP) contribution rates from 9.9% (split between workers and employers) to 9.5% beginning in 2027.
For a worker earning a salary of $70,000 this will result in annual saving of some $133, or about $2.55 per week.
For Canada’s five largest chartered banks, they will receive a $40 million in savings; Canada’s telecoms – $19 million; and Walmart, some $14 million.
The justification for this move, one supported by all provincial and territorial governments, is the 2024 federal actuary’s report that the cost of delivering on the CPP pension promises is 9.19%, below the proposed new rate of 9.5%. The federal update does not comment on the fact that two decades prior to the 2024 report the actuary reported that the minimum base rate needed to sustain CPP was higher than 9.5%.
So, what’s at play here? Is government betting that the economy will be such that there will be no need to hike CPP rates? This was the question posed by Globe and Mail columnist, Tony Keller, who observed that cutting premiums is ‘always easy and quick’. Whereas increasing CPP premiums given the requirement for support of the federal government and two-thirds of Canadian provinces representing two-thirds of the population will not be easy.
The result is the removal of $3 billion from the plan designed to secure Canadians retirement benefits. If the plan is indeed taking in more money today than it needs, why not start a discussion about improving the plan, or creating a reserve for an unanticipated rainy day?
CPP only provides a pension of 33% of yearly maximum pensionable earnings (YMPE) (currently set at $74,600 annually). Why not increase the YMPE with the surplus? Or increase the CPP death benefit which has been set at $2,500 for decades. Or perhaps chart a course to gradually increase the 33% level, given the private sector retreat from sponsoring decent defined benefit workplace pensions?
Canada’s CPP is well run, but it provides a modest benefit for workers when compared to other G-7 state pensions. This means millions of Canadians are marching towards retirement without the necessary resources to live comfortably.
What the Carney government, under the guise of the affordability crisis, did is to reduce pension contributions which will result in a cup of coffee a week in savings for the average worker. They did this after speaking with provincial / territorial governments. They did not consult with the Canadian Labour Congress (CLC) the 3.5-million-member labour central which spearheaded the 2010 to 2016 campaign which resulted in the first pension formula changes (from 25% to 33%) in the history of the plan.
Cutting workers pension premiums without speaking to worker representatives is plainly wrong. Tossing a minuscule break to workers using those workers’ own money, in a manner that may come back to threaten the stability of the plan is reckless.
Inflation protection under CPP can be restricted under certain circumstances, and retirees (currently some six million Canadians) have no idea that the certainty of inflation adjustments has been arguably made less certain by the federal government.
At a political level, CPP exists because the provinces agreed to it some sixty years ago. Why on earth would provincial / territorial governments let the federal government announce and take credit for an affordability move, when it can only happen with provincial consent?
More importantly, how on earth can the fed’s justify premium cuts for a profitable banking system and large corporations, while tossing a miniscule break to workers? Our CPP deserves more prudent care than this short-sighted and questionable move.