A bigger CPP would come at a price along with more questions than answers, says Eckler’s Tory Milnthorp
Canadians aren’t saving enough for retirement, pension coverage is declining, household savings rates are dropping, and the people who need help the most are the least equipped to ask for it.
And while Troy Milnthorp believes the answer might already exist, getting there is another matter entirely, he emphasized during one of the Canadian Pension and Benefits Institute (CPBI) Saskatchewan Conference sessions on Wednesday.
The question is whether expanding the Canada Pension Plan could close that gap. After all, the infrastructure already exists. CPP is approaching a trillion dollars in assets, it’s portable, it pools longevity risk across the entire population, it’s professionally managed and it’s mandatory.
Meanwhile, workers don’t have to think about it, opt into it, or make investment decisions.
Still, Milnthorp underscored the plan is widely trusted but poorly understood.
"I think people generally trust CPP. I don't think there's too many skeptics out there that say it's being mismanaged or it's fraudulent,” said Milnthorp, senior director of pensions at Eckler. “I think it’s highly trusted. It's very well known. But I don't think anybody understands it," he said.
Education plays a key role here as attendees notably asked how to improve it in their respective organizations. While better education would probably help, giving people more information should lead to better retirement decisions. But in practice, Milnthorp suggests, the first hurdle is getting people in the room at all.
For large, dispersed workforces such as teachers, nurses or municipal staff, that can be difficult as people are spread across different locations, and have other priorities competing for attention, all the while pensions are rarely thought of when time is limited.
He was also skeptical that access to education automatically translates into action. Even when sessions are offered, turnout can be thin, and the people who most need the information may be the least likely to attend.
His first recommendation was to simplify access on both the CPP and Service Canada website, pointing to the formula and the number of steps it takes to find out what you are owed. He also suggested the government could build on its existing financial literacy resources by adding modules specific to CPP and Old Age Security.
While financial literacy education is only part of the answer, Milnthorp emphasized it needs to start early, pointing to school-level curriculum as a step in the right direction.
“The big miss here is that they don't make it simple enough for people to digest. At the end of the day, the pension space is a very complex world that we're living in and you have to put it in bite sized pieces and if you don't get it right, people get overwhelmed and then they give up,” Milnthorp said. “For me, it’s simplification and figuring out how do we cover more people?”
Yet, expanding CPP still wouldn’t fix everything as Milnthorp underscored it would still leave gaps at both ends of the income spectrum. High earners would have insufficient coverage above the earnings ceiling while low-income workers might not see enough benefit to move the needle, he noted.
While expanding CPP sounds neat in theory, Milnthorp framed it less as a clean policy fix and more as a political, economic and structural fight.
For one, there are basic design questions that still have no obvious answer: whether an expansion would apply evenly to everyone or be tiered, whether workers could opt out, how quickly changes could be phased in, and how provinces such as Alberta - which has floated its own pension path - would respond.
Quebec would add another layer of complexity, and any major CPP change would need broad provincial backing, which he suggested is difficult enough under normal conditions.
He also raised the question of trust, particularly as governments expanded CPP not long ago, so asking the public to support another major change could be a hard sell.
On top of that, the economy would have to absorb higher contributions, and the pension industry itself would be forced to adjust. Consultants, administrators and plan sponsors would all have to reckon with what a larger public plan might mean for their own role. Milnthorp believes that makes the issue bigger than policy design; it becomes a question of whether the country is actually willing to disrupt the current system rather than keep layering fixes onto it.
“Some of us consult, some of us manage these plans. What if we didn't have them? What would be the impact of that?" he said.
Additionally, while the 2019 enhancement moved the target replacement rate from 25 per cent to 33 per cent and extended the earnings ceiling, full vesting requires 40 years of contributions, which means almost no one currently in the workforce will receive the complete benefit.
As for middle-income earners, the gaps remain. To that end, Milnthorp suggests an increase in contributions, increase the benefit accrual, expand the earnings base, and let the existing machinery do the rest.
"It basically solves many of the problems we talked about. The coverage gap, longevity, risk behaviour risk, people moving around," he said. “All of that would be covered through this. We'd hit the nail on the head.”
As to what replacement ratio CPP would need to target to make a real difference, Milnthorp noted “50 to 60 per cent would probably be at least substantial enough to cover off people.”
But he conceded that contribution rates at that level would start to scare people, and existing DB and DC plans would need to be restructured.
"Something has to come off at some point and that's where it would become challenging on the transition piece," he added.
He suggested there are other paths if CPP expansion proves too hard. Stronger auto-enrollment is one option, especially because compulsion has been a recurring theme in his argument.
Better default decumulation tools are also another, so plan members aren’t left on their own to figure out how to turn savings into retirement income, Milnthorp noted, pointing to countries like the Netherlands and the United Kingdom.
He also pointed to target benefit plans, incentives to expand pension coverage, and the possibility of much larger consolidated DC arrangements, similar to what exists in Australia.
Ultimately, the question isn’t whether CPP could be expanded, but whether policymakers and the industry are prepared to pursue a bigger solution at all.
"Mandatory is better than voluntary. It just is," he said. "People will do what they want to do. It doesn't matter what we tell them. It doesn't matter what we show them. People are generally driven by emotion."
