The 2010 Labour Day message from the Canadian Labour Congress focused on the reform of Canada's pension and retirement security system, and specifically on the expansion of the Canada/Quebec Pension Plan.(1)

Pensions are a timely topic for the Labour Day message, given the momentum that has been building for reform for the past few years. However, the message opened with a grandiose claim that the Canadian Labour Congress and its adherents - the "working people" - changed the government's mind. According to this message, the Canadian Labour Congress campaigned to expand the Canada/Quebec Pension Plan and the country's finance ministers agreed.

Various professional organisations, such as the Canadian Bar Association, the Canadian Institute of Actuaries, the Association of Canadian Pension Management and the Canadian Pension and Benefits Institute, and many of the largest employers in Canada have made and continue to make coherent, informed and balanced submissions to government bodies. There has not been a shortage of expert opinion on these issues.

Reform of the retirement savings system is complex. Canada has an intricate web of pension and tax regulation. Whatever reform has been achieved so far has been piecemeal. Pension legislation has been tinkered with at the federal level and in many provinces. Minor technical changes have been made to tax provisions. The result so far is that not much has really changed. The consultations continue.

The Canadian Labour Congress's message states that the Canada/Quebec Pension Plan is "not enough for anyone to live on today". In fact, it was never intended as such. Canada's retirement system is not a one-legged stool. The Canada/Quebec Pension Plan is only one leg of a three or four-legged stool. The plan was started in 1966, and within 10 years it was providing full pensions to retirees equal to 25% of the average wage. In addition, old age security benefits were providing an additional 15% (subject to claw-back on income over $66,733). No one would say that this is adequate income replacement on retirement.

The Canadian Labour Congress's message refers to the Canada/Quebec Pension Plan as the "safest, most secure and guaranteed retirement savings plan in the world". While that may be true, it was not always so. Combined employee/employer contributions had been set at 3.6% of pensionable earnings for the first 20 years of the Canada/Quebec Pension Plan. Owing to the growing number of retirees relative to contributors and the overall change in demographics, the system was in peril. Contribution rates were raised dramatically over the following 15-year period (1987 to 2002) to 9.9% of pensionable earnings.

Now that the Canada/Quebec Pension Plan is on a sound financial footing, any measures to increase the level of benefits on a defined benefit basis would have to be examined closely and with due regard to demographic trends. Interestingly, the Canadian Labour Congress's message makes the point that only one in four people in Canada can afford to put money aside in a registered retirement savings plan or tax-free savings account. If that is the case, it is difficult to understand how most people will have the capacity to make additional contributions to the Canada/Quebec Pension Plan.

Clearly, there is little support in the employer community for the type of expansion to the Canada/Quebec Pension Plan that will mandate increased payroll taxes. For example, if the level of benefits under the Canada/Quebec Pension Plan is doubled, as the Canadian Labour Congress has proposed, premiums would have to double to close to 20% of pensionable earnings (or by doubling the pensionable earnings limit, resulting in the same thing).

What has set Canada's retirement income system apart from others around the world is its appropriate balancing of the legs of the stool:

    * leg one - old age security and guaranteed income supplement;
    * leg two - the Canada/Quebec Pension Plan;
    * leg three - employer-sponsored pension plans and registered retirement savings plan savings; and
    * leg four - all other sources of savings and wealth, including one's principal residence.

Undue augmentation of one leg of the stool (ie, the Canada/Quebec Pension Plan) will ultimately be to the detriment of the others, resulting in an unbalanced retirement system. There is only so much money to be devoted to retirement savings. The doubling of the Canada/Quebec Pension Plan premiums would result in fewer dollars elsewhere. It is widely recognised that the third leg of Canada's retirement system has been suffering and is now much weaker than it used to be. More focus of the reform should be placed on strengthening and expanding this leg of the stool, thereby restoring a better balance to the system.