Article content continued

The push to expand CPP for many Canadians is therefore a raw deal. I am sure Tom Mulcair and Justin Trudeau don’t want to attack many poor or middle class workers but that is exactly what would happen with a mandatory expansion of the CPP.

The Conservative proposal for a voluntary CPP is no better as an idea. The tax credit for CPP contributions is insufficient given much higher taxes to be paid on benefits once received.

Besides, a voluntary CPP that provides a defined benefit after retirement is a hard sale due to the so-called adverse selection problem. Those individuals who expect to live shorter than the average plan member would not want to invest in CPP since they would prefer higher benefits. The plan would be left with those living a long time, thereby requiring higher contribution rates to cover actuarially fair benefits.

For this reason, most observers would suggest that a voluntary supplementary CPP would need to be like the RRSP or Pooled Registered Pension Plan, which are defined contribution plans, whereby retirement income depends on the investment experience of the plan. However, CPP has never been organized that way since accounts would need to be kept for individuals who would want to monitor them. Besides, a government providing a voluntary pension plan better not mess up. With bad investment experiences such as in the fall of 2008, demonstrations at Parliament Hill would surely result.

Before federal and provincial governments even consider expanding CPP, they should at least convert contributions from tax credits into deductions for personal income tax purposes. This would improve the implicit returns making CPP a better investment. It would also be a welcome tax break for many Canadians.

Jack M. Mintz is the Palmer Chair, School of Public Policy, University of Calgary.