Thank you.
First I'd like to thank the committee for inviting me to speak, especially on an issue as important as the plan to expand the contributions and benefits of the CPP.
Previous changes to the CPP were based on clear evidence that changes were necessary. Prior to the introduction of the CPP in 1966, 44% of seniors lived in poverty, clearly unprepared for what was a new phenomenon of living a substantial portion of one's life after leaving work. The reform of the late 1990s was based on the actuarial fact that a “pay as you go”, or PAYGO, system for a rapidly aging population meant unbearably large and fast increases in contribution rates for younger workers. Instead, contribution rates were hiked immediately, and the surplus funds were invested in the newly created CPP investment board as the CPP transitioned to a modified PAYGO scheme.
Unfortunately, the proposed reform package of the CPP is not grounded in current experience and facts. Looking at both the living standards of retirees and the financial soundness of the CPP, one can only conclude that there is no actual or impending crisis. Instead we are being sold on the proposition that Canadians are not saving enough, despite the immense amounts of wealth they are squirrelling away in a variety of assets, nor are most low-income Canadians being left behind in their retirement. The combination of OAS and GIS guarantees that few will fall below the poverty line. One exception is elderly women who have never worked.
Instead we have an imaginary crisis, mostly for the middle- and upper-middle-lass workers who hold many financial and housing assets. The hypothetical crisis is based on forecasts decades into the future that implicitly make assumptions about everything from when older people leave the labour force to how much income they earn, the assets they hold, the return on these assets, what future inflation will be, and even how medical technology will change life expectancy. The future evolution of any and all of these variables is inherently unknowable, and the uncertainty surrounding attempts to forecast them has not been openly acknowledged by their proponents.
As a result, they have convinced themselves that the future is predictable, even after it was made strikingly clear in 2008 that economists and financial analysts could not predict the global financial crisis that was just around the corner and the lingering impact that crisis would have on growth. The myth of a possible drop in living standards of retirees is openly encouraged by the financial industry, which stands to profit from both an increased supply of savings and higher demand for its lucrative financial counselling services.
What we do know for certain is that the Canadian economy is in its most prolonged period of slow growth since the early 1990s. When CPP contributions were introduced in 1966 and increased in 1997, the economy was booming, which made the reduction of household disposable income growth manageable. In the current circumstances of weak growth and with the U.S. poised to reduce its tax burden, imposing another tax hike on Canadian households will only further dampen growth.
Let us dispense with the argument that CPP contributions represent a form of saving and not a tax. Your CPP contribution is not saved as an investment in an account set aside for you like your RRSP. Since the CPP is primarily a PAYGO system, your contributions today are going to pay the pensions of today's retirees. Your future pension is based on the assumption that younger workers will be willing to pay CPP contributions for your retirement. If future generations decide that it's too much of a burden, which is possible given the tax hikes they'll be paying to meet other demands of an aging population, such as health care, you will quickly discover that there is no savings account with your name on it.
To the degree that higher contributions are offset by lower savings elsewhere—StatCan estimates the offset is about 50%—then the vulnerability of future retirees to an arbitrary change in their pensions is increased.
The debate over CPP reform detracts attention from the real problem at the heart of the pension system today, which is the imbalance between the public and private sectors. Currently one third of the workforce in the public sector has two-thirds of trusteed pension plan assets, and even that is not enough to pay its generous benefits. Instead, the public service will be looking to the private sector, which has two-thirds of Canada's workers but only one third of pension plan assets, to subsidize its pensions. The current level of benefits in the public sector is unsustainable, and it is unrealistic and unfair to ask private sector workers to pay even more as private sector pension benefits lag.
Thank you.