An expanded Canadian Pension Plan (CPP) is the best option to boost Canadian retirement savings levels, according to Paul Forestell a senior partner with Mercer.
Forestell spoke at Mercer’s 22nd annual Pension Outlook and Fearless Forecast in Toronto on Thursday.
“The CPP does check the boxes of sustainable after the reforms of the 1990s,” said Forestell. “It’s well-run, well-respected, and the infrastructure is in place to run it.”
The alternative solution for improving savings of implementing pooled registered pension plans (PRPPs) will not be as effective as an expanded CPP, says Forestell, because PRPPs do not fix the current issues with various retirement savings tools, such as the CPP or registered retirement savings plans (RRSP).
“The PRPP is really just an improved or, maybe more appropriately, a stripped down version of our current RSP and DC platforms,” he said.
For example, people will not make sufficient contributions to PRPPs if they are made voluntary, said Forestell, in the same way that many Canadians have unused contribution room in their RRSPs. As well, it is unlikely that a mandatory PRPP system will provide the same benefits and cost savings as an expanded CPP.
Furthermore, PRPPs will probably put the same pressures on Canadian businesses as an expansion of the CPP, said Forestell. “If you believe that an expanded CPP would harm economic recovery, it seems to me mandatory PRPP contributions would have the same impact,” he said. “Unless, of course, the costs were much lower than the expanded CPP.”
Forestell said an expanded CPP must follow two conditions to be successful. The first is that the CPP must be fully funded from the start without any transfer of cost between generations.
Secondly, the CPP must be consistent across the country. If provinces decide “to go it alone” on pension reform, as Ontario said it might, said Forestell, it will eliminate most or possible all of the economies of scales the current CPP structure provides.