WRAPUP 1-Canada eyes "modest" increases to pension plan

* Finance minister says moves would not hurt economy

* Agreement with provinces will not likely be quick

* Liberals say ideas do not go far enough

By Allan Dowd

VANCOUVER, June 11 (Reuters) - Any increase to Canada Pension Plan contributions will be "modest" to protect the economy as Ottawa looks to push Canadians to save more for retirement, Finance Minister Jim Flaherty said on Friday.

Flaherty plans to press provincial finance ministers next week to support his plan for a "modest, phased-in and fully funded" expansion of benefits under the public pension plan, as well as ideas to promote increased private savings.

Flaherty outlined his ideas in a letter to provincial officials on Thursday, but the suggestion for the Canada Pension Plan quickly came under attack from a business group that warned that increases would hurt the economy.

"The use of the word modest is entirely intentional. We have no intention of causing hardship in the Canadian economy," Flaherty told reporters in Vancouver following a speech to a luncheon of financial analysts.

The federal finance minister is scheduled to meet with this provincial and territorial counterparts on Sunday and Monday in Prince Edward Island.

Currently, employees and employers pay a combined 9.9 percent of a worker's pay into the CPP and the Quebec Pension Plan on income of between C$3,500 and just over C$47,000. The fund pays out pensions to retirees, starting at age 60, as well as disability and survivor benefits.

Any changes to the CPP by the federal Conservative government would require provincial support, and Flaherty said any changes would take "a long time" to work their way through to a final agreement.

Flaherty told the provincial ministers that more had to be done to encourage private savings through tax changes, and the financial sector should be allowed to offer "broad-based defined-contribution pension arrangements to multiple employers, all employees and the self-employed."

But he also wrote that he was worried that even with those changes "some Canadians may not save enough for retirement", adding there was wide public support for strengthening the CPP system.

"I believe that we should consider a modest, phased-in, and fully funded enhancement to defined benefits under the Canada Pension Plan in order to increase savings adequacy in the future," Flaherty wrote.

One idea he has rejected is introducing a voluntary fund at the CPP. "We know it won't work. They tried this kind of experiment in the United Kingdom and it turned out to be a disaster," he told reporters on Friday.

The main opposition Liberal Party said the Conservative government's proposals did not go far enough and should include the creation of a supplementary CPP as well as provisions to protect retirement plans of companies that go bankrupt.

"I would characterize it as baby steps," Liberal legislator John McCallum said of Flaherty's plan.

A Toronto-Dominion Bank report on pensions this week said a growing number of Canadians will find themselves retiring with inadequate savings unless the pension system is reformed.

OLD ALLY UPSET, OLD FOE NOT SO MUCH

The Canadian Auto Workers union, a traditional opponent of the Conservative government, gave initial praise on Friday for Flaherty's plan, even though it doubts the government will raise benefits as much as the union would like.

But the Canadian Federation of Independent Business, a traditional ally of the Conservatives, labeled the idea of raising CPP benefits as "outrageous", and called for the provinces to reject the plan.

The group complained it would be especially hard on businesses recovering from the recession. "Shouldn't ministers of finance be just as concerned about job creation as they are about retirement income?" it said in a news release.

Flaherty also told the Vancouver gathering he believes the Canadian economy is still recovering, despite international strains such as the debt situation in Europe.

The minister reiterated Ottawa's position that countries have to do more than just talk about how they are "constraining" debt, they must also demonstrate they are in fact doing it. (Reporting Allan Dowd; editing by Rob Wilson)