Mr. Sheridan gets his pension debate

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Finance minister’s proposal to reform CPP garnering national attention

Finance Minister Wes Sheridan

Prince Edward Island’s minister of finance thinks it is time to have a serious conversation about the Canada Pension Plan and so far he is succeeding in that goal. And with Canada’s provincial finance ministers meeting with their federal counterpart in December, and the Canada Pension Plan (CPP) on the agenda, his timing is spot on.

In a late-September speech to the Atlantic Provinces Economic Council, Wes Sheridan argued that leaving everything to the individual doesn’t protect the wider society in terms of pensions. “The current system is becoming too dependent on individual savers, who have a propensity to under-save, are over charged and invest in products that may not be right for them,” he said.

Mr. Sheridan is worried many middle income Canadians are not adequately prepared for retirement. There can be many reasons why people aren’t financially prepared. Some say they can’t afford private pension plans, that they are having enough trouble feeding and clothing their family. Many others, especially the young, think retirement is for old people and there’s plenty of time to plan for it later in their lives. They are correct about the fact pensions are for older people but they sometimes underestimate how quickly Father Time can catch up with them.

 One pension everyone can depend on is the Canada Pension Plan. In fact, sadly, in some cases it is the only pension people have outside of the old age one. What Mr. Sheridan is pointing out, and why he wants changes, is that the CPP maximum benefit is only a bit over $12,000 a year. That doesn’t leave much room for exotic winter vacations unless a trip to the Dollar Store in Moncton’s Champlain Mall in February tickles your fancy.

Mr. Sheridan is suggesting raising the maximum CPP contribution to $4,681.20 a year from $2,356.20, which in turn would see the maximum benefit increase to $23,400 from $12,150.

A Globe and Mail story says Ontario Finance Minister Charles Sousa likes Mr. Sheridan’s plan. “There’s too many who aren’t saving, especially in the middle-class category. We need to provide enhancement to CPP,” Mr. Sousa said.

The story says the current payroll contribution rate is 9.9 per cent (split evenly between employer and employee) on income between $3,500 and $51,100. The P.E.I. proposal would roughly double the maximum pensionable amount and make the combined contribution rate 13 per cent on income between $25,000 and $51,000. The combined contribution rate would be 3.1 per cent — up from zero — on income between $51,000 and about $102,000.

Much remains to be debated in Mr. Sheridan’s proposal, and no doubt many employers and employees would cry foul at having more come off their paycheque. Employers especially would argue it is one more slice off of their already small profit margin.

But the idea is an intriguing one, especially for those Canadians who, for many of the reasons mentioned previously, are not able to enhance their public pensions with private ones. Fast forward a few years and try to imagine the demand on the government’s social net if thousands of Canadians are trying to live on $12,000 to $15,000 a year. It’s not a pretty picture.

So Mr. Sheridan has his debate and it is one that all Canadians should pay attention to, whether they agree with him or not.

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Recent comments

  • Pension Guru
    October 18, 2013 - 14:54

    This is merely a bailout for the public sector pensions. You exclude any mention of Old Age Security or the GIS, that bring retired Canadians to a decent level of income. Sheridan is anxious to divert attention away form the $25M a year for 20 years he has promised to already over paid government workers. Unions are happy to support this plan as they will continue on with their gold-plated pensions and be bailed out once again by taxpayers. Already Canadians over 65 are consuming $45,000 a year in income supported programs like CPP, OAS and GIS in addition to healtchare and free drugs. They are the ones who broke the bank and drove the country to massive levels of debt. Now we want to give them more?

  • Claw-back
    October 18, 2013 - 13:29

    Great idea but the government will just continue to claw-back pensions if the taxpayer tries to establish income from other pensions or sources. Sort of dampens the incentive to try and save for retirement, doesn't it?

  • Jerry Jones
    October 18, 2013 - 10:54

    Wes should go back to teaching school. It is quite clear he knows little about how pensions work and how they are funded. The Canada Pension plan should have the biggest surplus than any plan in existance given its payouts and contribution rates. Now he turns his eyes on Provincial Plans which in the pass have been underfunded by governments of the day and blames the mess on plan members.