Let Canadians opt out of the CPP

Give Canadians more choice in planning their retirements.

(This column originally appeared in the Toronto Sun)

By: Candice Malcolm

Why doesn’t the federal government permit all Canadians to opt out of the Canada Pension Plan (CPP) entirely?

Federal Finance Minister Joe Oliver said earlier this week the feds will consider allowing Canadians to voluntarily opt into an expanded CCP. On one hand, the idea of increasing the size and scope of the CPP – which provides a tremendously bad deal for young Canadians – is worrisome. Especially so since Ontario Premier Kathleen Wynne just rammed legislation through Queen’s Park forcing millions of workers to contribute to her government’s mandatory Ontario Retirement Pension Plan, planned for 2017.

On the other hand, however, giving Canadians a semblance of choice over how to manage their CPP account is a welcome breath of fresh air. If some Canadians are concerned the CPP will not provide enough for retirees – a recent Nanos poll suggests 52% support increasing CPP benefits – then let those folks contribute more and receive more upon retirement. For those who do not believe the CPP offers a good lifetime return or enough flexibility, myself included, we should be given the option to opt out and manage more of our own savings. There are, after all, plenty of government-enabled financial services available already, such as tax-free savings accounts, pooled registered pension plans and traditional RRSPs.

In fact, the proposed voluntary supplement for the CPP is such a good idea that the government should apply that thinking to the entire CPP fund. If the government is opening the door to the possibility of voluntary contributions to the CPP, Canadians should also be extended the opportunity to opt out of the fund altogether.

Sound too extreme? Putting adults in charge of their own retirement should not be a radical concept. Providing choice in pensions has worked elsewhere.

In the 1980s, Chile was dealing with troubling demographic and economic trends that threatened the viability of its government pension regime. It was on the verge of bankruptcy, so the government replaced the pay-as-you-go scheme with a new system of private accounts. The new pension system transferred the value of a worker’s existing government pension into a privately-managed account and allowed workers to choose between pre-approved pension funds and service providers.

Workers are still required to contribute a mandatory 10% of their annual income into a pension fund, but they are given more choice and flexibility over how these funds are managed. Workers were initially given the choice between staying with the government fund or moving to the private system. When faced with this option, 95% of Chilean workers chose to take control of their personal retirement accounts.

Good on them. The choice paid dividends.

During the first three decades since the transition, private Chilean pensions have yielded returns six times higher than what workers received under the old government system. The private Chilean model gives workers an annual return of about 8.7% above inflation, with returns reaching heights of 13%. Chile’s system is simple, transparent, and places a minimal burden on the government or future taxpayers.

Best of all, it allows choice and flexibility for workers.

Allowing citizens to have more freedom when planning for retirement shouldn’t be a radical proposal. Canadians should demand that our governments start treating us like adults.

A good start would be allowing us more choice in planning for our retirement.