Pensions and retirement security are shaping up to be key issues in this October's federal election, with the political parties calling into question the effectiveness of the existing retirement savings system and proposing various changes to the framework.
It's an aspect of the election that the financial services sector is watching carefully, as it could change the way Canadians save for retirement and potentially reduce the extent to which Canadians rely on individual investments to accumulate retirement savings in the future.
"The pension issue, for reasons beyond me, has become a political football, and all political parties have jumped into the fray, wanting to make all kinds of changes to the existing scheme," says Ian Russell, president and CEO of the Investment Industry Association of Canada. "What I'm concerned about is some damage being done to a pension system in Canada that's proven to be quite effective."
At the heart of the issue is the debate between expanding the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) as a way of improving retirement income security vs relying on voluntary private savings vehicles.
There's a clear divide between the Conservative Party of Canada and the other two main parties on this issue. Although the Conservative government recently launched consultations to explore a possible voluntary supplement to the CPP, the party is opposed to a mandatory increase in contributions. In fact, it argues that raising CPP premiums could harm families and jeopardize economic growth.
"We share the concerns of small business, employees, numerous independent think tanks, and many provinces about increasing costs for Canadians during a fragile global [economic] recovery," says Meagan Murdoch, director of communications with the Conservatives. "Canadians simply cannot afford to pay higher payroll taxes."
However, from the Liberals' and the New Democratic Party's (NDP) perspective, expanding the CPP and QPP is the key to improving Canadians' retirement security in a cost-efficient way. Both NDP leader Thomas Mulcair and Liberal Party leader Justin Trudeau have vowed that, if elected, their respective parties would begin discussions with the provinces and territories on how to enhance those pensions within the first few months of forming government.
Russell is perplexed by these sweeping proposals, saying there's no evidence that the broad population is facing a widespread retirement savings shortfall in the first place. He is concerned that enhancing the CPP — regardless of whether it's on a voluntary or mandatory basis — could have unintended consequences.
"You're increasing payroll taxes on companies and individual Canadians," he says. "That tax is going to have implications for spending behaviour, hiring behaviour and investment behaviour."
Russell contends that Canadians could meet their retirement savings goals more effectively through individual investment vehicles such as RRSPs and tax-free savings accounts (TFSAs): "They're better off saving themselves, and then they can have an advisor to help them customize it."
The Tories highlight the steps they have taken under Prime Minister Stephen Harper's leadership to facilitate this type of individual saving, such as establishing the TFSA, and, more recently, boosting the contribution limit on the account to $10,000 a year — a measure that the NDP and Liberal parties have vowed to rescind.
The NDP argues in its campaign materials that such private-savings vehicles force Canadians to invest in products such as mutual funds "that pay uncertain returns and eat away at their retirement savings with sky-high management fees." Thus, the party argues that the focus should be on enhancing the CPP.
The NDP and Liberals also criticize the Harper government's move in the 2013 federal budget to increase the eligibility age for old-age security (OAS) and the guaranteed income supplement (GIS) to 67 from 65, arguing that it forces retirees to wait two extra years for much-needed income. Both parties have promised to reverse that initiative and, beyond that, they've pledged to increase GIS benefits for low-income retirees.
The Liberals also propose enhancing these benefits by developing a new price index that would apply to the OAS and GIS. The "seniors price index," the Liberals say, would be more generous than the consumer price index to reflect the faster pace of growth in the cost of goods that seniors typically purchase compared with goods that other Canadians buy.