CURAC/ARUCC is a non-profit federation of retiree organizations at colleges and universities across Canada. Its primary aim is to coordinate activities that promote communication among member organizations, to share information, provide mutual assistance, and speak publicly on issues of common concern to its more than fifteen thousand members across Canada.
Voluntary Supplement to the Canada Pension Plan
CURAC/ARUCC is pleased to respond to Minister Oliver’s request for comment on the possibility of allowing voluntary contributions to the Canada Pension Plan (CPP) as a means of solving the problem of many working Canadians who are judged to not be making sufficient financial preparation for their retirements.
As part of the broad public sector most individuals in our member associations are the beneficiaries of either a defined benefit pension plan, usually integrated with the CPP, or of a defined contribution pension plan. Thus the great majority have made adequate financial preparations for retirement, providing an informed background to comment on this proposal.
It seems very likely to us that if the problem being addressed is lack of voluntary contributions towards one’s retirement providing yet another avenue for making voluntary contributions will not be a solution to the main dimension of the problem. It may provide yet another option for managing investment of one’s contributions. It also may provide efficient administration of contributions and subsequent benefits. But logic suggests this is very unlikely to address the basic problem of making sufficient contributions over the period of one’s working life for many Canadians.
We note that other analyses, years apart, from multiple independent sources, have reached the same conclusion. An extensive analysis in 2010, “Assessing Big CPP Proposals” by Jonathan R. Kesselman of the Policy School, University of Calgary, parsed the adequacy of financing for one’s retirement across multiple segments of earners. For those judged not making adequate financial preparation, there was no evidence cited that any voluntary scheme would change their behaviour.
A more recent comment by Mike Moffat of Canadian Business Magazine, in June of 2015, on voluntary contributions to the CPP was more critical. “If you believe that the biggest issue in retirement saving is that insurance firms are overcharging for annuities, then a voluntary CPP makes a great deal of sense. If you instead believe our pension issues lie elsewhere, then a voluntary CPP is less like pension reform and more like picking a fight with the insurance industry.”
A comment representative of most editorials published after the minister’s announcement was that of the Winnipeg Free Press of May 28, “A voluntary contribution scheme … would attract only those who can afford it -- something most Canadians, clearly, have not done to date.”
It seems evident that many other parties have examined the notion of voluntary contributions to the CPP and not found any basis for assuming it would solve the problem of some Canadians not making sufficient financial preparation to sustain their standard of living in retirement. We agree with that conclusion.
If voluntary contributions are permitted we believe management of them by the Canada Pension Plan Investment Board is the preferred option. The CPPIB has an excellent record of investment management. In addition, administrative efficiency in adding these new contributions to the $250+ billions already managed would seem to argue for that arrangement. Creating another entity to manage these contributions, or outsourcing their management to some other private or public sector entity, would not create any obvious advantages.
On the question of whether voluntary contributions should be locked in until retirement, we support that being done. If withdrawals before retirement were possible this would seem to weaken any argument for such contributions addressing the problem of inadequate retirement savings.
Similarly allowing contributors to transfer those funds to other savings accounts would remove the advantages of the excellent and stable investmentmanagement record of the CPPIB.
References
Kesselman, Jonathan R.,”Assessing Big CPP Proposals”,
Moffat, Mike, “Seven ways to look at voluntary contributions to the CPP”,
Winnipeg Free Press Editorial, May 28,