CPP Expansion – Taxpayer Loss #1

By Joe Nunes

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The death of the Ontario Retirement Pension Plan (ORPP) wasn’t much of a celebration for me because even though the ORPP was definitely the ugly step-sister, CPP expansion isn’t exactly Cinderella.

I haven’t started writing about Expanded CPP partly because there is so much we still don’t know and partly because July and August is my time to take some vacation.  So I wasn’t expecting to write anything yet – until my friend Joe Hornyak alerted me to this OMERS update on CPP enhancement.

OMERS provides a generous defined benefit pension to our local government employees.  The plan targets providing workers with a pension equal to 70% of their pre-retirement final average earnings. Even better, the plan provides annual increases to pensions in pay to protect retirees against inflation.

Once upon a time, the 70% target was considered ideal.  Recently, some commentators have observed that it might not take that much income to be comfortable in retirement.  We can discuss that debate another time, but what no one – absolutely no one – has been saying is that we need more than 70%.

So you can imagine how frustrating it is to read:

“Although the OMERS plan benefit is integrated with the current CPP, the change in CPP does not directly impact OMERS plan benefit or contributions as it is currently contemplated administratively.  The change in CPP will result in higher total (OMERS + CPP) contributions and higher combined pensions (OMERS + CPP).”

“The income replacement rate from CPP and OMERS combined will increase from roughly 70% to roughly 80% for those whose earnings are less than the upper earnings limit (i.e., 114% of the YMPE).”

That’s right kids, 80%!

So, who cares right?  They pay for more CPP and get more CPP and we shouldn’t envy what others have?  I would agree with that sentiment if it weren’t for the fact that the local governments that employ these workers just saw a 1%+ jump in payroll costs – to be funded by….taxpayers of course.

I will start imagining a world where our local governments are able to effectively adjust compensation for its workers to reflect this new benefit and its cost.  I will also start imagining that arbitrators will start siding with government employers over the impact of the uncontrolled costs of retirement pensions and retiree health benefits.  I am lucky that I have a pretty good imagination.

 

 

Joe Nunes
Joe Nunes
Joseph Nunes, Co-founder and Executive Chairman of Actuarial Solutions Inc, has practiced in the area of pensions and retiree health plans for over 30 years. He has experience with many types of plans including single-employer, multi-employer, private sector, government, unionized, non-unionized, as well as registered and non-registered executive plans.

2 Comments

  1. Avatar Bill Loucks says:

    I agree, Joe. But, this would have also been the case had the Ontario plan been implemented. So, maybe we should have been ranting about this as soon as Ontario started talking about their new plan.

    Bill

  2. Avatar Bob says:

    Interesting the numbers, looks like the feds wanted to kill the concept of the OAS being 15% of the AIW while at the same time trying to keep the “government programs at about 40% of AIW as exists in many countries.

    Of course the issue here is to transfer the cost form the pure government cost to the EE/ER cost.

    GIS and GAINS will take care of those who are here for a short time or who do not work and those who do have work for most of their lives in Canada will pay more.

    Too bad we cannot see the basis for 33% and be able to tie it to an ongoing reduction in what the OAS provides or was intended to provide..

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