Is expanding CPP best solution to "retirement crisis"?

The ongoing debate about improving Canada's pension system -- in response to what has been called a retirement income crisis -- continues with recent remarks by Ontario Premier Kathleen Wynne. At recent Ontario Liberal party events last week Wynne chided Prime Minister Stephen Harper for refusing to strengthen the Canada Pension Plan as a means to ensuring middle-class Canadians have adequate retirement income.
The prime minister is showing "willful and ideological indifference to the retirement income crisis," according to Wynne.
"It's somewhere between offensive and inexplicable to ask that people who have worked hard all their lives to be rewarded with a retirement that takes them out of the middle class."
Wynne said a pension income crisis has developed as a result of a decline in company pension plans along with a shift from defined benefit to defined contribution plans. Expansion of the CPP would solve the problem.
"But Stephen Harper has an ideological has an ideological aversion to the CPP, so there is no federal leadership in this area."
As a result, Ontario is working on its own plan to enhance retirement income. Prince Edward Island and Manitoba are also looking at options. Alberta's government has rejected CPP enhancement and is not currently projecting its own pension scheme.
The adequacy of the current retirement income system, the desirability of expanding CPP and other possible options are also the subject of three recent reports that come to differing conclusions.
The country's retirement income system is failing Canadians, states a study by the Canadian Centre for Policy Alternatives.
In Risky Business: Canada's Retirement Income System, author Hugh Mackenzie strongly criticizes RRSPs as a retirement savings vehicle because of their high fees, lower returns and the fact they are mainly utilized by higher income earners. The Pooled Registered Pension Plans (PRPPs) introduced by the federal government suffer from the same defects, he says.
Mackenzie says that expanding the CPP would be the best way to provide for retirement income because management costs are lower, longevity risk is taken care of and better returns can be generated.
"The Canada and Quebec pension plans are among the largest and most successful pension plans in the world," MacKenzie has said. "That is not cause for complacency, but it is an opportunity. The next phase of pension reform must build further on that solid foundation."
Risky Business: Canada's Retirement Income System is available on the Canadian Centre for Policy Alternatives website: http://policy alternatives.ca.
A report from the C.D. Howe institute that particularly addresses the Ontario situation recommends a so-called "middle way" between CPP expansion and reliance on PRPPs.
Author Keith Ambachtsheer notes there is general agreement that Canada has a pension coverage problem. However he does not favour CPP expansion (also referred to as "Big CPP") because it would be mandatory and future generations might be required to fund pension payouts if assumptions about invest returns are too optimistic.
His solution, based on a nation-wide proposal he made in 2008,  is a supplementary pension plan that employers would have to provide, while allowing workers would be to opt out. Rather than a definite pension income, plan members would have a pension "target," with actual payments varying on the basis of investment results.
The report,  Helping Ontarians Save for Retirement: How the Province Could Adapt the Canada Supplementary Pension Plan, is available at www.cdhowe.org.
In a paper published by the School of Public Policy at the University of Calgary, authors Kevin Milligan and Tammy Schirle examine four proposals for increasing retirement income.
They indicate that common plans to expand CPP would likely not benefit individuals making less than $50,000 annually because reductions in Guaranteed Income Supplement payments.
Their proposal is to double the cap on the maximum income covered by CPP from $51,000 to $102,000, which they argue would achieve the desired result without undue complexity.
The authors raise the question of whether retirement income shortfalls faced by relatively of well-off Canadians are really a question the government needs to deal with. However their conclusion suggests that it is.
"Decisions about saving are complicated, irreversible and vitally important," they state. "Leaving people to make these decisions on their own will result in some proportion of the population  choosing poorly and ending up in a dire position in their last years. If government has some responsibility for alleviating personal decision-making failures, a modest expansion to the CPP might be justified on those grounds."
The report, Simulated Replacement Rates for CPP Reform Options, can be found at www.policyschool.ucalgary.ca.