Fix EI to help Canadians retire richer

Premier Wynne should demand better for Ontario.

(This column originally appeared in The Hamilton Spectator)

By: Candice Malcolm

Worried about retirement savings? Premier Wynne is certainly worried for you. She doesn’t think that families in Ontario are saving enough for their retirement. Considering how much we are nickel-and-dimed in this country, maybe she’s right. The further the government reaches into our pockets, the less we have to put away for the future.

Premier Wynne wants to solve this problem by increasing forced contributions to the Canadian Pension Plan (CPP.) She may have diagnosed the ailment correctly, but her cure will make the patient even sicker!

Instead of calling for the government to take even more money from us, the premier should call for reforms to our current programs, starting with Employment Insurance (EI). Without changing premiums or growing the program, EI could be transformed to meet the needs and realities of modern day Canada by letting Canadians save their leftover EI contributions for their retirement.

A worker making at least $48,000 will pay $891 in EI taxes this year. Their employer tops up this contribution by adding another $1,248. That means that the average two-income family is responsible for $4,277 this year in EI taxes; money that the majority of Canadians will never use or see returned. Imagine if Canadians were entitled to keep this money? Imagine if those funds were held in trust for you, to use if you become unemployed or paid out at retirement if not entirely used. Imagine how much richer we would all be.

A two-income family would get to save that $4,277 contribution each year, helping to build a significantly nest egg for the future. In fact, a couple who starts contributing at age 25 and are fortunate enough to remain employed throughout their careers could save $1.07-million by the time they reached age 65.

Potential retirement savings is just the tip of the iceberg of why the government must reform the broken EI system.

The system is destructive. It has not helped lessen the effects of unemployment; it has merely exacerbated them. For instance, in rural Prince Edward Island, EI payments equate to 15 per cent of all working income in the province, compared to less than two per cent in Ontario and the western provinces. Between 2008 and 2010, 89 per cent of all working-age tax filers in rural Newfoundland and Labrador reported EI on their tax returns. Whatever the justification for EI, this incredibly sad economic reality is surely not the intended outcome.

EI treats Canadians differently and the regionally-biased formula is skewed against Ontario.

If a full time worker in Hamilton were laid off after 17 weeks on the job, that worker would not be entitled to collect a single cent of EI. Someone living in Northern Manitoba, on the other hand, would receive up to $16,830 in the exact same circumstance.

Ontario residents are far less likely to be eligible for EI payments, and yet Ontario taxpayers pay the brunt of EI taxes. Since 1981, Ontario taxpayers have sent an astonishing $75-billion more in EI taxes than Ontario residents have received in EI benefits.

The EI formula is convoluted and inefficient. It costs $4-million a day to administer! That’s about $400 per year from each family in the country to pay bureaucrats to shuffle EI documents and mail out cheques.

Scrapping EI and replacing it with an Employment Insurance Savings Account would kill two birds with one stone. It would address the chronic unemployment that plagues some regions of Canada, while letting folks keep more of their own money to cover rising retirement costs.

Chile undertook similar reforms and their new system is credited with lowering payroll taxes, increasing wages, and decreasing overall unemployment. The incentive is to conserve funds for retirement and to get back to work as soon as possible.

Premier Wynne should demand better for Ontario. Instead of trying to get more money out of the pockets of the average Ontario family, she should turn her sights to politicians in Ottawa and demand that they stop treating Ontario like the EI piggy-bank. We don’t need to increase CPP to build retirement savings, we just need our politicians to stand up for taxpayers and hardworking families and demand better from our EI system.