Walkom: How Ottawa’s pension reform short-changes the young

The great irony of the debate over workplace-based pensions that consumed Ottawa this week is that it has little to do with older people.

For workers over 50, the pension reforms introduced by Canada’s Conservative government on Thursday mean virtually nothing.

Such workers have relatively little time to save before they retire even if, as Ottawa’s proposed legislation contemplates, their voluntary savings are pooled into group RRSPs.

Similarly, the counterproposal suggested by the New Democratic Party opposition — an expansion of the existing, public Canada Pension Plan — would offer little benefit to today’s older workers.

The CPP, too, is based on an employee’s contribution history. For baby boomers, the youngest of whom were born in 1964, there’s not that much working time left.

Yet those whom pension reform would help — the young — appear to have no interest in the topic.

At a recent labour-sponsored symposium on pension reform I covered, virtually everyone present had white hair.

This may help explain why serious workplace pension reform has been so easily derailed: those who pay attention don’t benefit; those who would benefit don’t pay attention.

Yet workplace-based pension schemes are crucial. Everyone ages. Those too old to work have to live somehow.

The cost can fall on taxpayers as it does through Old Age Security, a payment for the elderly that is linked to income.

Or it can be borne by individuals themselves, which is how most workplace-based pension plans work.

Typically, an employee pays part of the cost of such a plan directly through payroll deductions and part indirectly, via his employer, through premiums that represent deferred wages.

Real pension plans (unlike bogus schemes known as defined contribution plans) offer a relative amount of certainty: People know what they’ll get at retirement.

And the best real pension plan going is the CPP. It is solvent, big enough to remain that way and relatively cheap to operate.

It is also compulsory, which prevents free riders — either employees or their bosses — from gaming the system.

Certainly, an expansion of the CPP is the best way to deal with the 60 per cent of workers — particularly younger workers in non-union shops — who have no other pension plan.

It doesn’t rely on the good intentions of employers (which appeals to labour unions). And by taking the strain from programs like Old Age Security, it saves taxpayers money — which appeals to fiscal conservatives.

Until last year, even federal finance minister Jim Flaherty was a fan.

But many employers don’t like the idea because it would require premiums to rise. Financial institutions fear an expanded public pension plan would eat into their profits. And politicians are nervous about anything that might resemble a tax increase.

All of which explains why Alberta and Quebec sandbagged Flaherty’s CPP expansion scheme last year and why Ottawa moved this week to the very third-rate solution of encouraging private financial institutions to offer so-called pooled registered pension plans.

Still, real reform is possible in those parts of the country that are willing. Two years ago, western provinces talked of establishing their own CPP supplement if Ottawa didn’t act. Last year, six provinces — including Ontario — called for an expanded CPP.

Ontario finance minister Dwight Duncan is reportedly still an aficionado of public pensions. So presumably are the Ontario New Democrats, who hold the balance of power in the provincial legislature.

If Ottawa will not, or cannot, help young people address their inevitable fate in a serious way, then surely it’s time for Queen’s Park to take the lead.

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