You can imagine my surprise when I was notified by a friend that the federal minister of Finance had risen in the House of Commons on May 26, 2015 to propose virtually word-for-word what I published as a concept paper in Benefits & Pensions Monitor in its October 2004 issue: that the CPP be amended to allow for additional voluntary contributions!!

[For those who like to go to the source, you can find this article at the following URL: http://www.bpmmagazine.com/02_archives/2004/october/reforming_canada_pension.html and its companion piece from 2009 at pages 38-39 of the attached PDF: http://www.bpmmagazine.com/02_archives/2009/BenefitsPensionsMonitor_June2009.pdf]

Right away, the vested interests in the country tried to discredit this very carefully considered reform idea. The NDP and now Justin Trudeau decry it as being "dead on arrival" because it does not force Canadians to save. Those who have pushed for a mandatory solution also quickly dismiss it on the basis that 'voluntary solutions' do not work or that Canadians are too lazy or simply stupid to look after their own retirement needs.

Others, without having the benefit of the facts and details, try to paint a picture of the solution to imply that it cannot work: too complicated to administer, defined contribution in nature (therefore not guaranteed), not enjoying risk-pooling etc.

This is the same kind of unsophisticated, and political thinking that can be so costly for Canadians. In defence of the voluntary Supplemental CPP option ("S/CPP") that was first discussed in 2004, detractors should consider the following:

1. It is not compulsory for the S/CPP to be a pure defined contribution plan with the traditional attributes of DC plans. In the 1950s and 1960s many registered pension plans offered by insurance companies took defined contribution premiums and purchased deferred life annuities that, when combined into a single pension payment, provided a DB benefit. Industrial Alliance has re-introduced this concept to the market place recently for RRSP and other CAP plans.

2. There are other ways of dealing with the adverse selection issue related to voluntary contributions. Locking-in is one of them. Risk pooling across age is another. Since, presumably S/CPP contributions would exclude member control (the CPPIB or a similar body would do the investing), the assets gathering inside of the S/CPP would start to look very much like a DB plan.

3. Actuaries often make provisions for adverse deviations in their funding calculations to manage the volatility of the pension promise. Nothing would prevent the architects of the S/CPP to build in a very conservative margin of error to make the pension paid out of the S/CPP as close to a DB pension as possible without recourse to top up payments.

4. Many decry the costs of administering the S/CPP. In truth, the entire administrative bureaucracy to manage the existing CPP (both ESDC and the CPP Investment Board) already exists. The CPPIB would not have to change anything to the way they do business, and ESDC is already monitoring via the CRA, the collection and payment of CPP benefits. Unlike the Ontario Retirement Pension Plan proposed by the Wynne government, which will require that brand new bureaucracies be established at great cost to the taxpayer (and/or plan members), the S/CPP is ready to go.

5. Fundamentally, advocates of the S/CPP trust that Canadians are rational and can be trusted to do the right thing if they are presented with the right incentives. A simple example puts this into context:

In this low interest environment, if an individual has $100 of disposable income that can be used to pay down debt, lower the mortgage balance or save for retirement, it may be financially more efficient to pay down credit card debt of 18%, or create equity in a tax-free principal residence mortgage, than to save in an RRSP or ORPP where the rate of return (before inflation, fees and taxes) will be 6%. The overall net worth of the individual might be much higher by avoiding a 'forced' savings strategy. By removing decision-making from the individual's control, the 'one size fits all' philosophy of adherents to mandatory solutions ignore what 200 years of economic theory has taught us: centrally-planned, Gosplan-like, bureaucratic solutions are not as efficient. Unfortunately, the 'elites' in academe and political circles who continue to ram the mandatory option down the throats of Canadians fundamentally distrust the ability of Canadians to think rationally. Ironically, the savings rate in Canada was extremely high in the early 1980s when the interest rates were in the double digit range. No surprise there. Now that interest rates are at an all-time low, is it any wonder that Canadians are trying to find other places for their money, like real estate?

I would bet any money on the brains and ingenuity of Canadians anytime above that of so-called experts who have vested interests and preconceived notions that haven't been empirically tested.