Tuesday, December 21, 2010

Flaherty's zombie pension reform

Explanation for that zombie reference below. But first...what did we see on Monday at that First Minister's meeting? An agreement to pursue the private pension plan and just a sliver of hope for CPP reform. Private prevailed over the public. Any enhancement of CPP has been put off to a future June meeting:
“We agreed that our officials should continue their work on the CPP,” said Finance Minister Jim Flaherty after the talks in Kananaskis, Alta. “We will come back at our June meeting to discuss options and concerns.”
Not so good on the CPP enhancement front. On this private plan, there may have been a big development: "New pension plan would require employers to offer it but allow opt-out." This mandatory aspect was new yesterday:
The criticism of the pooled system was that it was voluntary, and therefore unlikely to make much more of a difference to retirement savings than existing savings programs such as RRSPs.

But Mr. Flaherty argued that by forcing employers to offer the new PRPP – without forcing them to contribute – and by forcing employers to automatically enroll workers into the system with an opt-out provision, millions more Canadians will start putting away extra cash for retirement.

But employees, who under CPP must match employer contributions to the plan, would be under no obligation to contribute to PRPP.
Stated elsewhere:
"It would be mandatory for employees to participate in the plan unless they specifically opted out," said Flaherty.
It sounds like Flaherty is making it up as he goes. In that "Draft Framework for Pooled Registered Pension Plans" there was no mention of forcing employers to offer a plan. It said employers would be given a choice of whether to offer a plan to their employees (p. 5-6). Otherwise, employees would be on their own to sign up for one at the bank or insurance company or wherever these things would be purchased. Suddenly it's morphed into a requirement for employers. Sounds like it's just Quebec and Flaherty as early supporters of that development, so it may not ultimately fly.

How exactly a mandatory offering with an opt-out would boost enrollment is another question. They must be counting on people not opting out. There are shades of negative billing tactics there though, could be some fallout. And who would a presumptive mandatory employee enrollment benefit? A big winner would likely be the financial industry offering the plans.

This needs to be looked at long and hard, by those First Ministers of Finance of the nation and the federal opposition parties. With a view to how it might affect CPP in particular. Is this a burgeoning competitor that's being set up?

Here's some interesting early online reaction to the Harper government's direction to throw into the mix. In response to the question, "Would you support a shift to privately managed pensions," 17% (1122 votes) said "Yes. I trust the private sector to earn greater returns, even if it comes with greater risk." Yet 83% (5572 votes) said "No. I support an enhanced federally run Canada Pension Plan."

Those 83% supporting CPP there, in opposition to Flaherty's preferred route, bring to mind what Paul Krugman was talking about yesterday in his column, "When Zombies Win":
When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.
But such failures don’t seem to matter. To borrow the title of a recent book by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?
Why indeed. Exhibit A: Jim Flaherty and his private pension plan while he casually puts off CPP reform.