Don't let the NDP supersize our pension plan

The good news about this election is that Jack Layton has no chance of becoming prime minister. The bad news is that seven years of a splintered Parliament have granted an unusual level of influence to a man with a talent for making simplistic, ill-considered ideas about the economy sound appealing.

In Jack's World, there really is a free lunch. The NDP platform is full of them. Subsidized child care, drugs, green energy, elder care-all of it to be paid for with the billions that can allegedly be raised by increasing tax rates on businesses. This is the subtext of any Layton proposal: Somebody else (rich people, corporations, the banks) will pick up the tab.

Most Canadians see through this act, but every so often the disarming man behind the mustache gains a wider audience for a bad idea. Take Layton's championing of a massive expansion of the Canada Pension Plan (CPP) as the solution to the looming retirement crunch. The concept now has enough momentum to live beyond election day.

To the NDP, evil corporations are not merely bottomless sources of tax revenue; they're also the destroyers of the company pension. Today, only one in three workers in Canada belongs to an occupational pension plan. This is almost entirely a private-sector problem, since most government employees are nicely taken care of and no one dares question the financial sustainability of giving, say, teachers a full pension at age 58 to go bake under the sun in Costa Rica.

So the question is what to do about the other two-thirds of the labour force. Layton has a solution that sounds seductively easy: Just double the size of CPP payments. Where would he get the money? Just increase payroll taxes by 60%, wave a wand and-presto-the maximum CPP benefit, currently $11,520 a year, becomes $23,000 in seven years' time. Simple.

Cue the rhapsodizing from big labour, which loves the Layton plan and apparently believes that the CPP Investment Board has discovered a magic formula for Profits! Without Risk! But if you read the proposals carefully, you'll notice a bizarre contradiction. Layton's union pals think RSPs or other private investment vehicles are no answer because, as the financial crisis proved, stocks are too risky for ordinary folk. Instead, says Canadian Labour Congress head honcho Ken Georgetti, they should rely on the "solid, secure returns" provided by the CPPIB-which has more than half of its money in stocks and took a bath during the crash just like everyone else.

The $140-billion fund hasn't done that well in the market rebound, either. It earned $6.3 billion less than the market benchmarks it measures itself against in fiscal 2010. It isn't that the CPPIB is run by poor investors; it employs hundreds of good people, including some of the best talent on Bay Street. It's just that…well, investing all that money is far more difficult than it sounds. Although the CPP invests around the world, it can rarely move quickly or quietly. It isn't easy to change your view on gold when there's a half-billion dollars of Barrick shares on the books.

Size does have advantages. It means lower costs, and that's one of the most attractive features of the CPP. But at some point you've squeezed out all the economies of scale. If it's tough for the CPP's managers to be nimble now, imagine what the plan will be like in a decade, when it's projected to have $275 billion, even with no increase in the payroll tax that funds it. (The entire Canadian stock market is worth $2.3 trillion.)

This is why some wiser minds believe the task of running our treasured national pension might be spread out, to include other large-though equally cheap-fund managers. "Is it really a good idea to put all your eggs in one basket?" says Fred Vettese, chief actuary at Morneau Shepell and one of the country's top retirement experts. He favours modest changes to CPP benefits, phased in over decades. But he doesn't think new money has to be invested with the CPP Investment Board.

The overconcentration of financial power isn't even the biggest flaw with the proposed Mega CPP. Even worse, it will take money away from many of those who need it, and give it to those who don't. Advocates of a fat CPP insist that it is needed to keep the elderly out of food banks. In fact, poverty among seniors is remarkably low. Fewer than 5% of those over 65 are below Statistics Canada's low-income cutoff. Thanks to Ottawa's Old Age Security and Guaranteed Income Supplement programs, many seniors actually see their disposable income go up when they retire, says Vettese.

Poverty is a far bigger problem among working-age adults-nearly 10% of them fall below the Statscan line. Yet most of them would have to pay extra taxes to fund the Mega CPP. That's Layton's anti-Robin Hood scheme in a nutshell: removing money from the pockets of younger workers, business owners and the working poor to give better pensions to everybody, including those who already have a sweet deal at retirement. I can understand why union leaders like this approach. I just can't understand why anyone else thinks it's fair.