What you need to know about the 'job-killing' retirement benefits

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With one week to go before Finance Minister Jim Flaherty sits down with his provincial and territorial counterparts to talk Canada Pension Plan reform at Meech Lake, MPs are getting their chance to weigh in on the debate.

A motion from NDP MP Murray Rankin is scheduled to take up most of the day Monday. The motion calls on the government to use the Meech Lake meeting to support an immediate phased-in increase to CPP.

Finance ministers have been debating CPP reform at their annual December gatherings for years, but appeared to make a decision last year when they announced support for a "modest" increase and then asked officials to gather the details.

In the months that followed, Prince Edward Island and Ontario tried to rally the other provinces in support of a specific plan that would see the maximum annual benefit gradually rise from $12,150 to $23,400. The maximum CPP contribution would rise from $2.356.20 to $4,681.20, starting in 2016. Only people who pay the higher premiums would receive the higher benefits, meaning the increases would not apply to people who are about to retire.

There is broad agreement from all sides of the political spectrum that Canadians aren't saving enough. There are numerous reports to support this, including this one from CIBC Economics.

Where there isn't broad agreement is on the size of the problem and on what should be done about it.

Recently the debate has focused on the potential cost of increasing CPP premiums to pay for higher retirement benefits. There are strong opinions on both sides and a few attempts to estimate the economic impact of higher premiums. These reports are likely to be cited frequently in Monday's House of Commons debate and in the run up to Meech Lake.

Below is a summary of some of the most frequently-cited reports for readers to check out as they follow the debate.

Finance Canada

Word of this analysis first surfaced in an interview with The Globe and Mail by Kevin Sorenson, the Minister of State for Finance and the federal minister responsible for the pension file. In the interview, he said Finance Canada officials had concluded the PEI proposal would kill between 17,000 and 50,000 jobs. He also said a CPP proposal would kill up to 70,000 jobs. Mr. Sorenson said he would be willing to provide this analysis from the department.

The department did not provide its full analysis. Instead, it provided a six-paragraph statement that the department has done modeling "using a range of assumptions and models" to assess the impact of higher CPP premiums. The department said doubling the replacement rate – which is in line with an NDP proposal that is more costly than the PEI proposal – would lead to a 5.45 percentage point increase to the contribution rate shared evenly between employees and employers. It estimates this increase as the equivalent of 0.7 per cent of Gross Domestic Product and a cost of up to 70,000 jobs.

The department estimates the PEI proposal would increase contributions by 3.25 per cent on earnings between $25,000 and $102,000 and would be the equivalent of 0.5 per cent of GDP. The Finance Canada analysis assumes the higher rates are fully implemented in one year.

Canadian Federation of Independent Business

The national lobby group representing Canadian small and medium-sized business leaders has been among the most vocal critics of higher CPP premiums, which are paid evenly by employees and employers. The CFIB issued a report in May by Ted Mallett, the CFIB's vice-president and chief economist. It estimated that one option that was being considered last year would cut employment growth by 700,000 to 750,000 person years of employment over two decades. The CFIB sent a letter to provincial and territorial finance ministers in October that estimates a proposal by PEI would lead to the loss of 500,000 person years of employment.

The 1990s experience

Advocates of an expanded CPP point out that the last time there was a significant increase in CPP premiums, employment went up.

This view was outlined last month by Rhys Kesselman, who is Canada Research Chair in public finance with the School of Public Policy at Simon Fraser University. Between 1997 and 2003, CPP premiums were increased by 70 per cent as part of a major reform to make CPP sustainable for the long term. Unlike the current proposals, the premium increases that began in 1997 were not accompanied with promises of additional benefits.

Mr. Kesselman wrote that during that period of premium increases, "the country's employment rate rose strongly and steadily except for a slight dip with the 2001 economic downturn." He argues the CFIB's economic models failed to account for the higher benefits that would come with higher premiums currently proposed.

"Concern over the effects of CPP premium hikes is unwarranted and should not be allowed to block this important policy reform any longer," he wrote.

Bill Curry covers finance in Ottawa.