By Richard Woodbury


We all picture long, easy days in retirement, enjoying newfound freedom. But is such a future a reality or just a dream, especially for small businesses?

Pension issues remain a key challenge facing SMEs, according to the Canadian Federation of Independent Business. CFIB reports that 79 per cent of small and medium enterprises do not have a formal pension plan for either the owner or the employee.

Leanne Hachey, Atlantic vice-president of CFIB, says there is no affordable product out there for a small business owner and the products are too complex for their limited resources.

For most small business owners, their business is their pension. Unfortunately, with an aging population, some will find it difficult to get another individual to take over their SME, resulting in some businesses not getting sold and leaving many ill prepared for retirement. For employees of small businesses who do not have a pension, this means unless they make adequate preparations on their own, the golden years won’t be so golden.

One solution commonly proposed by labour groups is to have a doubling of the CPP benefits. Hachey is not a fan of this.

“Absolutely opposed,” she says. “Period. End of story.”

One reason is the CPP benefits wouldn’t double overnight. Another reason is small business owners and employees would each be on the hook for an extra $1,300 in contributions a year.

“What would that do for the overall economy?” asks Hachey. The short answer is it would take money out of it. However, how much it would take out is unknown.

Another solution being proposed is the use of pooled registered pension plans (PRPPs). The federal finance department says this would provide “a new accessible, straightforward and administratively low-cost retirement option for employers to offer their employees” and allow “individuals who currently may not participate in a pension plan, such as the self-employed and employees of companies that do not offer a pension plan, to make use of this new type of pension plan.” A PRPP would also allow people to switch jobs and still be covered.

Charles Cirtwill of the Atlantic Institute for Market Studies is a fan of this option.

“I think that’s a very interesting model we should be looking at,” says the president and CEO. “In many cases, small businesses don’t have pensions because they don’t have a large enough pool to invest in or they don’t have the capacity to sustain it over the long term.”

But perhaps the biggest problem facing small businesses regarding pensions is the competition they face with the public sector, says Hachey, who notes research shows public sector work pays more than the private sector and has better benefits.

“It matters to small business owners because they are in part paying for it, as are their employees,” says Hachey. “It matters to them because they compete with the public sector for employees. And when they find their tax dollars being used to pay for something they could not possibly dream of and lose potential employees because of it, it really makes them angry.”

Cirtwill shares a similar line of thinking.

“Government loves to talk about job creation and then they make it almost impossible for small businesses to grow,” he says. “Quite frankly, the pension competition is one of the factors making it almost impossible. How do they attract talent? How do they match those salaries? Not only do they have to try and match the salaries, but they’re actually subsidizing them through their taxes. They’re subsidizing the competition.”

Nova Scotia pension expert Bill Black isn’t entirely convinced the differences in pensions mean the private sector has a harder time attracting talent.

“Working for a small business has some positive things about it the public sector can never match in terms of lack of bureaucracy, being able to see what is going on,” says the former head of Maritime Life and the one-time provincial Tory leadership candidate.

It is well known many public sector pension funds have received financial bailouts and are not in the best of shape.

“What’s so attractive about public sector pension plans is what makes them so unaffordable,” says Hachey. “They guarantee a benefit so it doesn’t matter what’s happening in the world, it doesn’t matter how long you live, how much health care costs escalate, you are promised X amount of dollars every year.”

According to statistics from the Canadian Taxpayers Federation, between 1977 and 2009 the number of government workers with defined-benefit pension plans rose 8.2 per cent, but fell 54.7 per cent for everybody else.

Both Hachey and Cirtwill would like to see the public sector pensions be more affordable and sustainable.

This pension tension also means that people retire at different ages on average, depending on what sector they work in. According to Statistics Canada, people in the public sector retire at 60 on average, but the number is 63 for the private sector. For self-employed individuals, the number is 66. Hachey says this amounts to a two-tier system, something Canadians won’t accept for their health or education systems.

“Why would we possibly accept it for our retirement system?” she asks.