CANADA PENSION PLAN ENHANCEMENTS WILL DO NOTHING TO ELIMINATE FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

The last post discussed how the CPP plan in its present format financially discriminates against singles and the poor.  CPP is part of the Pillar 2 plan of Canada’s retirement income system for seniors.  The last post (program) showed how Canadian seniors will not receive full CPP benefit if they have not made full work contributions for forty years and if they do not have full Yearly Maximum Pensionable Earnings(YMPE) contributions for those forty years.  Canadians most likely to not receive full CPP benefits are those who have not worked for forty years or have not been able to make full contributions because of low income.  Senior singles also pay more and get less in seniors benefits (pay-more).

Recently there has been much discussion about CPP contributions and benefits being enhanced because Canadians are not saving enough for their retirement.  Apparently, the enhancements will include increasing the amount of required CPP contributions and, in return, the amount of CPP benefits received.

Enhancements include:  Once fully implemented in 2025, the total CPP contribution rate (which is shared between employees and employers) will increase from the current rate of 9.9 per cent to 11.9 per cent of eligible earnings up to a maximum of $72,500. In addition, earnings between $72,500 and $82,700 will also be subject to mandatory CPP contributions at a lower rate of 8 per cent.

CPP retirement benefits will also be increased. The replacement rate for pensionable earnings will increase from 25 per cent to 33 per cent. According to the Department of Finance, it will take “about 40 years” for the full increase in retirement benefits to be phased in.  The Department of Finance has stated that like the current program, future benefits will be based on the years of contribution and actual contributions.

The significance of these changes is astounding.  Future benefits will remain the same based on the two principles of the years of contributions and actual contributions, in other words, same old, same old.  The premise remains the same – individuals with highest YMPE will receive the most CCP, while those at lower income levels will receive the least CPP benefits because they have not been able to make maximum CPP contributions.

The YMPE will be be raised to between $72,500 and $82,700 (up from $54,900 or approximately $25 per hour in 2016).  Based on approximately 2,200 hours of work per year, $72,500 equals approximately $33 per hour and $82,700 equals approximately $38 per hour.  In other words, the more income an individual makes, the more CPP benefits they will receive.

In 2013, the minimum wage was around $10 in all provinces. In constant dollars, this rate was similar to the rate observed in the late 1970s.  It is only in the last several years that the minimum wage has increased somewhat.   Historically, Alberta’s minimum wage went from $8 in 2007 to $9.95 in 2013.   In addition to the stagnant wage, the Alberta income tax rate in 1999 went from a graduated rate based on income to a flat tax of 10%.  The tax rate for  the middle class and wealthy was changed to 10% while the rate for lower income individuals went up from 8% to 10%.

The 10% tax rate remained in place for about fourteen years until 2015, when the NDP came into power and reverted the flat tax system to a graduated system.The current minimum wage rose to $11.40 in October 2015 and is set to rise to $12.20 in October 2016.  This is has all been a result of the NDP party coming into power in Alberta after a forty year reign by the Progressive Conservative party.

At the present time, the difference between Alberta’s minimum wage today of $12.20 per hour and the present CPP YMPE rate of $25 per hour is striking.  What this means is that the middle class and wealthy working for forty years will be able to attain greater CPP wealth than the person earning a minimum wage who has faithfully worked for 40 years.  Why wouldn’t those working at minimum wage be angry and in utter despair at policy decisions that don’t financially include them with fairness and equality?  If ordinary persons without math degrees can figure this out, why can’t government, policy makers and businesses?

In order for there to be financial fairness, the minimum wage has to rise at same rate as the increase  the CPP YMPE rate!  Think that is going to happen, don’t hold your breath!

PROBLEMS:  

• Governments and businesses give many excuses as to why minimum wage should not be raised
• Businesses don’t want to pay the proposed increases of their required CPP employer contributions because they say it will impact their businesses-they are threatening to go to contract and part time employees.
• Currently only two provinces index their minimum wages based on the Consumer Price Index, thus offering guaranteed protection from wage erosion. Currently, there is no accountability for those actually determining the minimum wage.
• With new proposed enhancements earnings between $72,500 and $82,700 will also be subject to mandatory CPP contributions, but at a lower rate of 8 per cent.  Why is it that higher income earners always get the reduced rates?  Why should those earnings between $72,500 and $82,700 get a lower rate of 8 per cent?  What is the factual basis for choosing a lower rate for income range between $72,500 and $82,700?
• Minimum wage or a living wage and income tax rates are two very important factors that help determine quality of financial life for singles and the poor.  So why is that politicians, governments and businesses always give better rates to higher income earners (middle class and wealthy than lower income earners and to families over singles)?  Those at lower income levels are more often made to pay more while getting less.  Examples of this are increasing minimum wage at pitiful rates and making lower income earners pay the same income tax rate while decreasing rates for the middle class and wealthy as described above (Alberta Conservative government).   The present Liberal party did same by reducing taxes only for the middle class, but not reducing rates for the poor.
• Upside down finances continue to be perpetuated (finances) so that the poor are forcibly made to remain poor by the upside down financial decisions by government and politicians.  Why don’t single persons deserve a full CPP benefit if they have been faithfully employed for forty years, (never used EI, never used maternity/paternity benefits, etc.) but have not been able to contribute full YMPE because of a lower income?

CONCLUSION

The policy decisions by government for CPP enhancements past and present have created a pillar whose base is cracked and breaking.  The only way most ever singles, early divorced singles, single parents and the poor can ever hope to reach the maximum CPP YMPE is by working multiple jobs.   Married or coupled family units may have the option of both spouses working and receiving two CPP pensions.  The indexing of a minimum wage or a living wage is paramount in avoiding financial discrimination in CPP enhancements for singles and the poor. To do anything less is a blatant violation of the human and civil financial rights of poor and low income Canadians.

THE MINIMUM WAGE IN CANADA

An excellent article “The Minimum Wage in Canada” by the Canadian Labour Congress, April 2015 gives an excellent perspective on minimum wage (minwage).

Some of the details of this article include the following:  

“A profile of minimum wage workers will show that the stereotypical teenage employee is not the reality and many individuals are struggling to provide for their families on minimum wage incomes. Common concerns about increases to the minimum wage, such as a rise in unemployment rates, the financial impacts on small business, and alternative policy changes to address poverty will be discussed in order to break down the myth that an increase to the minimum wage will have detrimental economic impacts…..

British Columbia froze its minimum wage at $8.00 an hour for almost a decade.  During this freeze period minimum wage earners were put under increasing financial strain as inflation restricted their ability to consume.  Currently only two provinces index their minimum wages based on the Consumer Price Index, and are offered guaranteed protection from this type of wage erosion….

There are two clear considerations that must be made when evaluating the adequacy of the minimum wage in Canada….Letting the real value of the minimum wage deteriorate just creates a cycle of poverty….

For those who oppose increasing the minimum wage in Canada, there are several arguments used to justify maintaining low rates. …The amount of people earning the minimum wage has remained under 10% of the total working population. This is not a large enough portion of the population to make a difference; if most people already earn above the minimum wage there’s no need to increase it. One thing often used to strengthen this argument is that, of the small number of minimum wage workers that exist, the majority are teenagers or students who are not attempting to support a family. Instead, they are working for personal money or for the experience and will soon move up the job ladder. The first major issue with this argument is that it blatantly accepts discrimination as a reason to pay someone low wages. Age is one of the prohibited grounds outlined in Section 15(1) of the Canadian Charter of Rights and Freedoms which guarantees all citizens equal and fair treatment under the law. To say that the wages of adults should be prioritized over the wages of young workers is a clear violation of this right. The purpose of setting a minimum wage is to create a sense of equality for vulnerable workers of all ages. Second, teens account for less than half of the minimum wage earners, so there are quite a few adults in Canada earning the lowest legal wages. Young adults may not have been active in the labour market for long but they are just that, legal adults who have financial responsibilities. Some do attend a post-secondary institute; however, that does not mean they are working out of choice. Not all young people have the financial support of their families to help them pursue their education. They rely on their paid employment to cover the ever increasing costs associated with education. ….The reality is that minimum wage earners are not one specific group of people and they definitely do not fit the stereotype of a few teenagers and students getting their first jobs. ….

The philosophy associated with our economic system is the constant need to keep costs as low as possible, which also means low wages for much of our workforce …. The theory is that as wages increase operation costs, employers are forced to find other ways to make up the difference. ….Although Canada’s unemployment rate has made some recovery since the 2009 recession, as of August 2014 it was still 7.0%…. Given the current economic climate, this argument suggests that the potential repercussions that increasing the minimum wage might have on unemployment rates, could seriously affect Canadian society. After examining the economic research available on the connection between unemployment and minimum wage increases, it is difficult to say with conviction how the two factors are related, if they are at all….. According to The World Bank’s World Development Report 2013: Jobs, there is no known universal impact of the minimum wage on unemployment rates. In order to say with certainty what the impact actually is, individual countries would have to closely monitor the labour market and compile vast amounts of research (World Bank, 2012). Our opinion on the matter is very similar. Based on the research that has already been done, there is too much contradicting evidence to say with confidence what the real effects on unemployment rates are.

A proposed alternative to increasing the minimum wage is to instead increase the basic personal tax exemption…..This policy does not introduce more money into the economy, it simply redirects it from government revenues to individual households. ….The redistribution of money does not make Canadians better off, it only continues to subsidize the low wages offered by employers…..

Minimum wage workers are more likely to be employed with a large firm than a small company; a troubling trend that requires further examination.  This recognition that large scale companies are more likely to pay the minimum wage than small businesses raises some serious concerns about who is utilizing minimum wage laws and why. ….However, some of Canada’s largest companies continue to offer many of their staff members only the minimum wage despite their recent success and profitability…..

Individuals earning low wages are the least likely to be meeting all their needs, so when their wages increase instead of saving their new income they use it to purchase the goods they have been lacking. This directly contrasts the wealthy who are more likely to save or invest additional income than inject it back into the local economy.

Minimum wage laws can actually benefit communities. Studies have shown that because individuals cannot afford to financially support their households on the minimum wage, they often turn to social services for assistance ….This means that the taxpayers are essentially subsidizing the low wages of a company that makes billions in profits. Additionally, when large firms move into an area and offer low priced goods, it drives down the wages of workers employed at small firms that need to reduce costs to stay competitive….. In some cases, not only will wages in the area drop but small employers will be forced to close—eliminating jobs altogether.

Even with most provinces attempting to conduct neutral reviews on the minimum wage rate, the final decision still remains politically motivated. One team of researchers found that, while the proximity of an election did not influence the decision to alter the minimum wage, the political ideologies of the government in power did. The New Democratic Party in particular were more likely to have a higher minimum wage rate in place than other parties (Dickson & Myatt, 2002). A 2006 study (Green & Harrison, 2006) found similar trends relating to the minimum wage and political agendas; conservative governments would let the minimum wage stagnate and centre-left parties would approve increases but neither were willing to make drastic changes. ….The issues at play when debating the appropriate minimum wage rate are complex, as it is not exclusively an economic policy….. Rather it is the ideology of “universal fairness” that generates support ….. This attitude is further portrayed by research that suggests the public perception of poverty is not to blame the victim. One study found that respondents, instead of citing the self-destructive behaviours of individuals like laziness and the inability to adhere to a budget, were more inclined to believe structural factors were the major contributors to poverty. This included social and economic factors like low wages (Love, et al, 2006). Individuals also recognized that employment no longer guaranteed people the means to escape poverty, as wages are often insufficient and, while workers are often willing to work more hours, full time positions are becoming more rare (Love, et al, 2006). The reality is that minimum wage policy is an economic, political, and social matter. As Canadians we must decide what we need from our minimum wage rates, then determine how to balance all these factors to achieve that goal. Decreasing wage inequality should be the first priority, as minimum wage policies have the potential to prevent extreme poverty. Increase the wages of other low paid workers and allow individuals to accumulate more financial support (World Bank, 2012). We must decide what quality of life we feel all Canadians deserve. Should full-time workers only be able to meet their basic needs like food and shelter, or are they entitled to a lifestyle that also considers their social and political well-being when determining basic living standards….? It is not possible to set the minimum wage based solely on economic factors because these broader social implications are the end results for Canadians.

Currently, there is no accountability for those actually determining the minimum wage.

This is not an issue that only affects businesses, so the human aspect needs to be given more priority in the minimum wage debate. While it is important for our economy to remain stable, we must also ensure the needs of workers are being met. They should be able to enjoy a certain standard of living; however, full-time employment is no longer a guaranteed escape from poverty. It is time to evaluate what our society deems fair, and compensate minimum wage workers accordingly. Raising the value of labour at the bottom, is a raise for everyone in Canada”.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).