CPP/QPP increases? All signs point to trouble

Dan Kelly column
Financial Post Small Business
Published May 6, 2013


Late last year, federal and provincial finance ministers met to discuss plans to expand the Canada and Quebec Pension Plans (CPP and QPP). This discussion was largely lost in the pre-Christmas buzz, but holds massive implications for entrepreneurs and working Canadians.

Of course, the concept of CPP expansion has been widely discussed in media stories and columns – typically with the focus on the need to force Canadians to save for their own retirements and the benefit of the low administrative costs associated with CPP.  And while entrepreneurs do support the current CPP model, they are deeply concerned about the costs associated with any expansion of benefits.

Last week, CFIB issued an update of its Forced Savings report, which originally looked at the impacts of an expanded CPP/QPP in 2010. The latest report examines the so-called 10-10-10 proposal for CPP/QPP expansion. This plan would hike CPP benefits by 10 percentage points from 25 to 35% of maximum pensionable earnings (MPE), raise the MPE by $10,000 from today’s $51,100 to $61,100, and implement all of this over a 10 year period. 

And although this proposal contemplates a more modest increase to benefits than what was proposed by the Canadian Labour Congress in 2010 (CLC called for a doubling of benefits), the costs of the proposed benefit hikes would be substantial nonetheless.

  • Employees would pay up to $1,100 more per year in premiums.
  • Employers would pay up to $1,100 more per year, per employee.
  • The self-employed would pay up to $2,200 more per year (they must pay both shares of CPP).
  • Higher labour costs would lead to 700,000 person years of lost work.
  • Overall wages would be forced down by 1.5%.
  • Federal and provincial governments’ debt-to-GDP ratios would increase by 2 and 1.2% respectively.

These should be major concerns for every working Canadian and every business, non-profit or government that employs them.  While all of us, I’m sure, would love to retire with additional CPP/QPP benefits, we need to look a lot deeper. 

For example, as the 10-10-10 plan would sign us all up for 10 straight years of CPP hikes, we can all expect a drop in our take-home income on January 1 of each year.  Expect your employer to provide a raise to offset your added CPP costs?  I wouldn’t count on it as employers will struggle to cover off the increase in their share of CPP costs.  And, of course, hardest hit of all will be the self-employed as they already pay double the CPP rates of everyone else.

On top of that, we should really question how much benefit we will truly receive should CPP/QPP rates go up.  Even the Canadian Labour Congress, which is one of the big unions pushing for this kind of change, admitted that the full benefits of an increase wouldn’t take effect for forty years. For many of us, that means that we would never see the full benefits, only the additional tax hit that we will get each year. For small businesses struggling through a fragile economy, it would increase payroll costs and cause some to cut staff, others to reduce work hours.

The question of who would support such a move was one that we puzzled over at first. After all, it’s largely been public sector unions calling for a CPP/QPP hike, and because of the way public sector pensions are calculated, if CPP/QPP went up, public sector workers wouldn’t get any more money. No, the real motivation can be found in the massive unfunded liabilities that exist in a number of public sector pension plans across the country. A CPP/QPP hike would actually reduce government’s pension liabilities, thus masking the problem of overly generous plans. Keeping CPP expansion in the news helps government unions divert attention away from their own gold-plated plans.

Unfortunately, government unions have been quite successful in getting provincial finance ministers to do their bidding.  Most are calling for a CPP expansion and, with a meeting around the corner, CFIB is working hard to let ministers know that small business owners are overwhelmingly opposed to any mandatory expansion in CPP benefits. 

To this end, CFIB has launched a web campaign, entitled All signs point to trouble, that aims to educate Canadians about this issue, allows them to calculate the potential cost to them, and gives them an opportunity to express their opinions through an online petition. Go to cfib.ca for more information.

The provinces are pushing the federal government towards a decision on this issue at a meeting of finance ministers in June. But ordinary Canadians hold the cards. If they stay silent, it is very possible that provincial finance ministers will support a hike. But if they make it clear to provincial decision-makers that they won’t stand for a self-serving cash grab, we can stop this ill-advised idea from becoming reality.

Dan Kelly is president of the Canadian Federation of Independent Business and lead spokesman and advocate for the views of CFIB’s 109,000 small and medium-sized member businesses across Canada. Follow Dan on Twitter @CFIB