Finance Committee on Feb. 16th, 2012

[The Chair, Conservative, James Rajotte]

I call to order the 43rd meeting of the Standing Committee on Finance. Our order of the day, pursuant to the order of reference of Wednesday, February 1, 2012, is study of Bill C-25, An Act relating to pooled registered pension plans and making related amendments to other Acts.

We want to welcome our guests here today from the Department of Finance, the Department of Justice, and the Office of the Superintendent of Financial Institutions, and particularly the Hon. Ted Menzies, Minister of State for Finance, in his first appearance before the committee on which he used to sit as a very valuable member.

Welcome, Minister Menzies, to the committee. It's a pleasure to have you here today.

I'll note that we have Mike Wallace back at the committee as well. He came just to say hello to you—as well as Mr. Marston.

Minister Menzies, I understand you have an opening statement to present to the committee, and then we'll have questions from all the members.

[Ted Menzies, Conservative, Minister of State (Finance)]

Thank you, Mr. Chair.

It is indeed an honour to be sitting directly in front of you, instead of beside you, and cheering you on in your balanced decisions, to which we listened many days and many nights at this committee. I enjoyed it all.

Welcome to the new members here.

It is great to be back, and great to be back to speak to what I think is a well overdue option for our pension or income retirement system in Canada.

I should mention that I'm here with some very learned people, some from our Department of Finance—Diane Lafleur, Leah Anderson, Lynn Hemmings, and Yasir Syed—and as well from OSFI, or the Office of the Superintendent of Financial Institutions, a couple of experts, Carol Taraschuk and John Grace. John Grace and I and Lynn covered a lot of miles developing this new concept. They have been a tremendous help. Bill C-25, the Pooled Registered Pension Plans Act, is the reason we are here.

Mr. Chair, Canada's retirement system is recognized around the world by such experts as the OECD as a model that succeeds in reducing poverty among Canadian seniors and in providing generous levels of replacement income to retired workers. Simply put, our system is the envy of the world. The introduction of the pooled registered pension plan, or, as it has come to be known, the PRPP, will only build on this well-earned reputation.

The success of this model rests on the strength of the three pillars. The first pillar is made up of the old age security, or OAS, as well as the guaranteed income supplement, often referred to as the GIS. These programs provide a basic minimum income guarantee for seniors and are funded primarily through taxes on working Canadians. Our government has a responsibility to ensure that programs such as these are available for the next generation of Canadians as well. That's why our government will take a prudent, balanced, and responsible approach to making sure that OAS remains sustainable.

The second pillar is the Canada Pension Plan as well as the Quebec Pension Plan. These are mandatory public target benefit pension plans that provide a basic level of income to Canadian workers when they retire. There are currently 16.5 million workers contributing to either CPP or QPP. With these programs paying $44 billion in benefits per year to now more than 6.5 million Canadians, the CPP is the centrepiece of Canada's pension system. I'm proud to say that it is fully funded, it is actuarially sound, and it is sustainable for the long term.

The third pillar is composed of tax-assisted private savings opportunities to help encourage Canadians to accumulate additional savings for retirement. It includes registered pension plans and registered retirement savings plans. In total, the cost of tax assistance provided on retirement savings is currently estimated at $25 billion per year.

How do the PRPPs fit into what, as I say, is a good system already?

In 2009 a joint federal-provincial research working group conducted an in-depth examination of retirement income adequacy in Canada. While the working group concluded that Canada's retirement system is performing well, it also found that some modest- and middle-income households may not be saving enough for retirement.

Of particular concern were the following findings. Participation in employer-sponsored registered pension plans was declining. The proportion of working Canadians with such plans has declined from 41% in 1991 to 34% in 2007. Also, Canadians are not taking full advantage of other retirement savings options, such as the RRSP. Currently there is over $600 billion of unused room in RRSPs.

Through you, Mr. Chair, let me reassure the committee that our government recognizes the importance of ensuring that all Canadians have adequate income for their retirement. The report by the working group sent a clear signal that a gap exists on the voluntary side of Canada's retirement system.

With this information in hand, our government took immediate action to fill that gap. Over the past two years, our government's commitment to strengthen Canada's retirement system has taken me to every province and territory and countless communities across this country. In my travels, I've consulted with many Canadians, met with our provincial and territorial counterparts, and held discussions with small and medium-sized business owners as well as self-employed Canadians.

At our federal-provincial-territorial finance ministers meeting in December of 2010, after examining the various proposals that came out of the consultations, the federal, provincial, and territorial governments unanimously decided to pursue the pooled registered pension plan framework. This decision was taken because the PRPP was considered an effective and appropriate way to target those modest- and middle-income individuals who may not be saving enough, and in particular those who currently do not have access to an employer-sponsored registered pension plan.

What then are the PRPPs? They are in fact a large-scale, broad-based pension arrangement. They will be available to employees with or without a participating employer. As well, they will be available to the self-employed. This is particularly important as, incredibly, over 60% of Canadians do not now have access to a workplace pension plan. In short, PRPPs will provide these Canadians with access to a low-cost pension arrangement for the very first time.

By pooling pension savings, PRPPs will offer Canadians greater purchasing power. Basically, Canadians will be able to buy in bulk. This means more money would be left in their pockets for their retirement. The introduction of PRPPs also marks a significant advancement for small and medium-sized businesses. Small and medium-sized businesses have, until now, experienced a significant barrier in being able to offer a pension plan to their employees. Under a PRPP, most of the administrative and legal burdens associated with a pension plan will be borne by a qualified, licensed, third-party administrator.

We all understand that Canadians want their governments to work together to deliver results for them, and the PRPP is a prime example of what we can accomplish for Canadians when we do just that. Bill C-25 represents the federal portion of the PRPP framework and is a major step forward in implementing PRPPs. Once the provinces put in place their PRPP legislation, the legislative and regulatory framework for PRPPs will be operational. This will allow PRPP administrators to develop and offer plans to Canadians and to their employers.

Working together, I am confident we can get this important new retirement savings option up and running for Canadians as soon as possible. Let me quote Dan Kelly, the vice-president of the Canadian Federation of Independent Business:

This can't come soon enough from our perspective. We think this has great potential.

Before I take questions from committee members, I cannot stress enough how the introduction of the PRPP is just the most recent example of this government's continuing commitment to ensuring that Canadians have a dignified retirement.

I would like to take some time before you today to highlight some of the actions our government has taken to secure retirement income for Canadians. Financial literacy, for example, is an area where we are working to improve retirement income outcomes. Obviously, a strong system depends on the ability of its users to make informed decisions. That is why our government launched the task force on financial literacy to make recommendations on a cohesive, national strategy to improve financial literacy across Canada.

Since 2006, our government has increased the age credit amount by $1,000 in 2006 and then another $1,000 in 2009. We've doubled the maximum amount of income eligible for pension income credit, up to $2,000.

We introduced pension income splitting. We increased the age limit for maturing pensions and RRSPs to 71, up from 69 years of age before.

All told, we have provided about $2.3 billion in annual targeted tax relief to seniors and pensioners.

In addition, Budget 2008 introduced the tax-free savings account, which is particularly beneficial to seniors, as it helps them meet their ongoing savings needs on a tax-efficient basis after they no longer are able to contribute to an RRSP.

Our record also includes important improvements to several specific retirement income supports. In Budget 2008, we increased the amount that can be earned before the GIS is actually reduced. We raised that to $3,500 so that GIS recipients will be able to keep more of their hard-earned money without any reduction in their GIS benefits. Also, Budget 2008 increased flexibility for seniors and older workers with federally regulated pension assets that are held in life income funds.

In May 2009, Bill C-51 reformed aspects of the CPP to increase flexibility and fairness in the plan and allow it to better reflect the way Canadians live, work, and retire.

In Budget 2011, we announced a new GIS top-up benefit for the most vulnerable seniors. Seniors with little or no income will receive an additional annual benefit of up to $600 for seniors and $840 for couples.

The next phase of Canada's economic action plan provides an additional $10 million over two years to enhance the New Horizons for Seniors program. This additional funding is enabling more seniors to participate in social events, pursue an active life, and contribute to their community. The program provides funding for projects to expand awareness of elder abuse, promote volunteering and mentoring, as well as encourage social participation of seniors.

Clearly, Mr. Chair, our records show our government is committed to the financial well-being of Canada's seniors, a commitment we've demonstrated since our first budget.

The PRPP is only the latest example of our government's continued commitment to helping Canadians realize their retirement dreams. The introduction of the PRPP not only fills a gap in Canada's retirement system but makes a system that is the envy of the world even stronger.

Thank you, Mr. Chair. I'd be happy to take questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation, Minister Menzies.

We'll begin members' questions with Mr. Marston, for a five-minute round.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you, Mr. Chair.

And a belated happy birthday to the minister. I enjoy any opportunity I can get to centre you out a bit.

I'm also pleased to hear the minister talk about OECD. The OECD recently reported that the OAS system in Canada is fully sustainable, and I'd like to see that quote coming from the government from time to time.

Like the minister, I toured the country over two summers, with 40 community meetings, and I never once had anybody say they would like another vehicle that exposes their pension savings to market fluctuations. We already have that with RRSPs.

Specifically, when we consider the legal and financial risks associated with defined benefit pensions, employers who will receive, as they see it, additional savings in the PRPP administration fees because they'll be paid by the employee.... In effect, I believe this legislation has created a powerful incentive for employers to potentially want to shift their existing pension plans, whether they be defined contributions, defined benefit, or even group RRSPs, to PRPPs.

I'm concerned, and I'm sure Canadians will be concerned. For those who have a defined benefit workplace pension now, this will in a sense undermine the security they have going forward.

I'd like the minister's comments.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Marston, and thank you for your kind wishes, speaking of seniors....

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Mine's in 10 days and I turn 65.

[Ted Menzies, Conservative, Macleod, AB]

Well, an early happy birthday to you!

It's a good question and a reasonable question, as I always expect from Mr. Marston. He's a very thoughtful gentleman, and I know he has put a lot of his time into speaking with constituents and Canadians about this. And it is important. I think the whole aspect of looking at the overall retirement income adequacy of Canadians has become very topical, certainly with the downturn in the markets. I think we all understand that.

There actually has become a very national dialogue about retirement income adequacy, and I think the media has played a very valuable role in that as well, because people are reading the headlines and asking if they have enough for their retirement.

The pooled registered pension plan is not meant to take away from any other pension option out there; it's meant to contribute to it. I need to go back to the fact that RRSPs have been there for years. They have worked well, but people aren't using them adequately. So we're going to provide this broad-based option through the employers. When an employer chooses to offer this pension option to its employees, the employees will be automatically enrolled, and they'll have, then, the option to opt out, if they so choose. They'll have a 60-day period where they can opt out.

It has been proven in other countries that this brings more people in. It makes the pool larger. The returns will be better. It is low cost because there is more competition in the system to keep the price low. We think that will provide, as I say, one more option to help people save.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

It may be an option, Minister, but there are 12 million Canadians who don't have any savings and don't have any pension. And this proposal is voluntary. You know from our discussions that the NDP has talked about enhancing the CPP because it's mandatory, it's portable, and there's a lot of discussion we could have around that.

But it's the fact that people feel they can't afford to do any serious investment at all. At least if we double the CPP and we increase the premium, which is mandatory, they would be able to pay part of the cost of their future retirement. From the standpoint of the government, I know you see that as an increased taxation. There has to be a balance between the wall that Canadians will hit in 35 years...the 12 million people who have nothing.

Going back to the Canada Pension Plan and increasing that, to be very clear it seems like a—

[The Chair, Conservative, James Rajotte]

Question.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

—much better option.

[The Chair, Conservative, James Rajotte]

Just a very brief response, Minister, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you.

It's difficult to have a brief response; it's a very complex issue. It's a good question, again.

We've looked at expanding the Canada Pension Plan. We can't do it single-handedly because the provinces are our partners in that. We did not get unanimous support from the provinces to expand the Canada Pension Plan at this time, and exactly for what you said: it is going to cost businesses and it's a mandatory deduction.

You talk about people who can't afford to save. Then you're going to demand that they take money out of their cheque before they ever see it.

We think this option will be good, and we are hoping that people will start young. Even if they put a few dollars away, it gives them a safe, well-protected pool

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Marston.

Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

Welcome once again, Minister.

The one thing I have to confess is that I know you have very big shoes to fill, because I am trying my best to fill them here. I'll tell you that these folks alongside me have appreciated every ounce of advice you have given them over the years. I'm certainly trying to do my best to give them advice as well, but I'll never match what you did here on the committee. So I want to thank you on behalf of this group.

[Ted Menzies, Conservative, Macleod, AB]

I gave no financial advice, though.

[Shelly Glover, Conservative, Saint Boniface, MB]

It's nice to see Wayne Marston back. He has contributed quite a bit to the pension discussion.

I want to follow up on what you just talked about with regard to the CPP versus the PRPP, because Canadians continue to hear politicians push on the issue of trying to do something with the CPP. So this is just to be very, very clear. How many provinces were in for the PRPP? How many provinces said no way...CPP. We can't do it at this point?

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Ms. Glover, for that question.

It was a very interesting discussion. It was actually over two years that we discussed this. First of all, when we first started developing the PRPP, several of the provinces shared their concerns that this would cost their local businesses more money. They were concerned about that. Certainly, some of the provinces encouraged us to continue to look at the options in CPP to see if there was some way to improve it. In the midst of that we were actually doing a triennial review of the Canada Pension Plan, and that's when we came up with the findings that it is actuarially sound; it's in good shape.

In politics, if you have everyone saying this is a good idea, that's consensus, and that's what we had. We did not have consensus from the provinces to pursue at this time a Canada Pension Plan expansion.

We moved forward with that. Some of the provinces actually wished we had moved faster. Quebec, for example, actually reflected their plan to move very quickly with this in their last year's budget. They think this is a great option for people within their jurisdiction. They're ready to go, and many other provinces are ready to go. We'll be having the consultations on the regulations coming out soon. We think this certainly is accepted better by the Canadian Federation of Independent Business, as I quoted before.

Let me just read you another quote:

For every one percentage point increase in CPP premiums beyond the current 9.9 per cent rate, it would cost 220,000 person-years of employment and force wages down roughly 2.5 per cent in the long run.

That is troubling. That's why many of the provinces said go forward with the pooled registered pension plan.

[Shelly Glover, Conservative, Saint Boniface, MB]

You did mention in response to Mr. Marston as well the fact that the mandatory nature of CPP is not something that's attractive to some Canadians. We tried for it in my own riding. People like to have options, so this is why I think PRPP is a great choice. Small and medium-sized businesses, as you indicated, are very troubled about the suggestion of CPP. I know in my riding they've commented that they're just recovering from a recession that was felt globally.

How do you see this affecting small and medium-sized businesses? How do you think the PRPP is going to help them?

[Ted Menzies, Conservative, Macleod, AB]

Many businesses that I have spoken to, when you explain the process.... In fact, one of my friends sitting here witnessing this appearance today is one of the gentlemen...Doug Fletcher of Home Hardware is a business owner in my local community. When I explained it to him—and this wasn't staged, he just happened to be here today—he said this will give him an option to provide a pension plan for his employees, and this way, he won't have to take on the responsibility of the management of it. He's not carrying the fiduciary responsibility. That's in the plan administrator's role. Many businesses don't have time to be a financial advisor, but if through a simple process they can offer this to their employees, that's a great tool for them. In my province of Alberta, that's something you can add as enticement to get people to come to work for you.

[The Chair, Conservative, James Rajotte]

Great.

Thank you, Ms. Glover.

We'll go to Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chairman.

Welcome, Minister.

Minister, you mentioned it was Doug Fletcher of Home Hardware.

[Ted Menzies, Conservative, Macleod, AB]

Yes.

[Scott Brison, Liberal, Kings—Hants, NS]

When I spoke with Jeff Redden, who owns the Home Hardware in Windsor, Nova Scotia, the birthplace of hockey, I asked him if, in addition to the PRPP, which is an additional choice for him to help his employees build a retirement plan, he would be open to an optional voluntary supplemental CPP—in addition to PRPP. He thought it was quite an interesting idea, for a couple of reasons.

First, the PRPP is not a defined benefit plan, and CPP is, so in addition to that, it would help. The PRPP, by nature, doesn't protect you against market drops when you're approaching or in retirement.

Second, the CPP is very well managed, has a low fee structure and management cost, has diversification across asset class—everything from private equity and public equity and real estate to geographic diversification—and across sector.

Why aren't you, as a government, pursuing the option, in addition to the PRPP, of offering a voluntary supplemental CPP to give people like Jeff Redden of Windsor Home Hardware and his employees an opportunity to have that option?

One other benefit, Minister, would be that this other option would also help keep the PRPP fees lower, by providing some really low-cost competition that would be a very attractive investment.

[Ted Menzies, Conservative, Macleod, AB]

Thank you for that question and advertisement for your local Home Hardware. Perhaps we'd better draw this advertising session to an end.

It's a good question, Mr. Brison, and I appreciate that.

We looked at that. We've been looking at all options for some time. We've talked to the Canada Pension Plan Investment Board as well as its administrators as to what the options are, and what simple changes we could make to CPP that wouldn't negatively impact the strength of the existing fund. As you say, it's solid, and their results, just released the other day, are very good. But it would change the structure of the Canada Pension Plan if they had to include individual accounts and voluntary contributions. They told us they could do it, but it would increase the costs. The fundamental principle of the pooled registered pension plan is that it's broad-based and it's going to be very low cost. Competition will keep the cost low.

We don't need another expensive option because RRSPs are out there. You can invest in whatever.

[Scott Brison, Liberal, Kings—Hants, NS]

Yes, but did you ask them what the fee structure impact would be and what the cost would be? I bet you that even if there were a slight increase in administrative cost, based on the size of the CPP fund, they would still be more competitive than the PRPP options. I bet you they would still be cheaper.