Status of Women Committee on Nov. 3rd, 2009

[Chris Forbes]

Sure. In my opening remarks I went through a few issues. I can go back to them, but I think we've made a number of changes on the first pillar of the retirement income system with respect to increasing the amount of employment income that GIS recipients can earn before their GIS is reduced.

On the second pillar, which is the CPP, I mentioned the triennial review results and a number of changes that have been proposed there, which are before Parliament as part of Bill C-51. Those include the removal of the work cessation test, and increasing the drop-out provisions.

On the third pillar, which would be the tax assistance for retirement savings and other tax measures, in fact we've had increases in the pension income credits. We've had an increase in the age amount. We've introduced pension income splitting. And the age when one has to convert an RRSP into a RRIF has been raised from 69 years to 71 years, and phased retirement as well. And the final one would be the tax-free savings account.

[Alice Wong, Conservative, Richmond, BC]

Yes, that's the next question I was going to ask.

[Chris Forbes]

Okay.

[Alice Wong, Conservative, Richmond, BC]

So you do believe that the introduction of the tax-free savings account will help the pensioners or people who really are planning for their pensions down the road?

[Louise Levonian]

The tax-free savings account is a multi-purpose vehicle. You can save in your tax-free savings account and if you want to buy a car and you have enough money in your account, you can withdraw it. You can use it to buy your home. But certainly it can also be used for retirement income. It's a multi-purpose available tax-free savings account, so it can be used for that as well.

The other thing that's quite a benefit of the tax-free savings account is that on the money put into a tax-free savings account, the earnings are accumulated tax-free. But when you withdraw the amount from your tax-free savings account it won't affect your GIS benefits or any other benefits upon withdrawal. You pay the tax up front and then you don't pay the tax after.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

So there you are. We went a minute and a half overtime.

Now Ms. Brunelle.

Perhaps I can remind everyone that this is a five-minute round. And I hesitate to cut someone off in the middle of an answer, because obviously we all want to hear the answer. But we have been going a minute and fifteen, a minute and a half now, over in the five-minute round. This is a five-minute round, so may I ask everyone to be quick with their questions and actually quick with their answers so we can get information without going over time.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Thank you, Madam Chair.

Good afternoon, ladies and gentlemen.

Mr. Ménard, you are an actuary. You therefore make sure that the Canada Pension Plan contains enough funds to pay out benefits to all those individuals retiring. You told us that the contribution rate of 9.9% that has been legislated and will apply in 2010 should be sufficient to ensure the viability of the pension plan. Your colleague told us that this should be for a three-year period.

What was the previous contribution rate?

[Jean-Claude Ménard]

From 1966 to 1986, it was 3.6%. After that there was a gradual increase which reached 5.6% in 1996. There was a significant increase from 1996 to 2003. It went from 5.6% to 9.9%.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Was that because additional benefits were provided to retirees or simply because of all the baby boomers retiring?

[Jean-Claude Ménard]

At the very outset of the Canada Pension Plan, it was agreed that the contribution rate would not be enough. Around the year 2000, there was a consensus that the rate should be increased, even though in 1966, the thinking on the birth rate, in particular, was quite positive. In the end, there were less children born than expected and therefore the population aged much more quickly.

In my predecessor's actuarial report, in 1993, it was made clear that the contribution rate should be increased to as high as 14%, simply because of the aging of the population. Governments made the decision in 1997 and an agreement was confirmed on Valentine's Day. They truly agreed that day. They decided to increase contribution rates, decrease the growth of benefits by approximately 10% in the long term, and establish the Canada Pension Plan Investment Board in order to obtain better returns and to limit the costs of the Canada Pension Plan.

Since 2000—and this will apply up until around 2020—contributions to the plan total more each year than the benefits paid out. This contribution surplus is transferred to the Canada Pension Plan Investment Board, which then invests this money in a diversified portfolio made up of assets, shares, bonds, real estate, infrastructure and so on.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

The Canada Pension Plan, contrary to the Quebec Pension Board, for example, does not seem to have been affected by the problem of asset-backed commercial paper. There were no significant losses over the past year.

[Jean-Claude Ménard]

These people navigated the global financial storm very well in 2008. The return in one calendar year was -14%. That is not a return to be proud of, however stock market indices went down all over the world. There was a global financial collapse and stock market indices went down on average by 30% to 40%. During that time, the CPP investment board's return was -14%. In the context of the global situation, this plan did much better than most other pension plans.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

I would now like to address an issue about which much is said. My question is for whoever would like to answer.

Part of our constituency is made up of retired people. Old age security benefits were indexed, and people invested their savings in such things as RRSPs, but in some cases the money was badly invested. Some people have seen their investments lose approximately 30% in value. In my previous position, I participated in a defined contribution pension plan, as opposed to a defined benefit plan. And there were similar losses in that plan. People want to know what is going to happen. They are worried about their pensions.

Is it your sense that the situation is improving? As part of this committee's work, we are trying to find measures that would allow women to benefit from better paying pension plans, but what we are seeing on the whole is that people are becoming poorer.

[Jean-Claude Ménard]

The last two quarters on the financial markets have been positive, exceeding expectations. In that sense, things have recovered from the previous eight quarters. During that time, returns were lower than forecast. However, how things will evolve is quite uncertain. Be that as it may, the situation has greatly improved since March 9, 2009.

[The Chair, Liberal, Hedy Fry]

Go ahead, Ms. Mathyssen.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Thank you, Madam Chair.

I've been doing some research, and we have information from a number of sources, one being the Canadian Labour Congress. They indicated that in January 2009, 567 farms pulled the plug on their operations and filed bankruptcy. Ontario manufacturing bankruptcies rose by 24%. Business insolvencies also rose in Quebec, because the recession very clearly is hitting the province's industrial sector very hard, and 250 companies closed their doors, while there were 202 closures in December 2008. This impacted a significant number of workers.

The only region in Canada that currently insures pensions is Ontario, where the mandatory fund protects earnings of about $1,000 per month, or $12,000 per year, for those pensioners who are suddenly without any money. We've talked about the review that's gone on, and an expert commission recently recommended that this amount be increased to $2,500 per month so that pensioners would truly be protected against the cost of inflation and the reality of what it costs to live.

Should such a protection plan be encouraged among the other provinces, as well as an increase, so that people are not left in difficult circumstances?

[Jeremy Rudin]

This suggestion came forward from some quarters in the consultation that we were just discussing. The federal government, as you can see, by omission did not proceed with it. The view animating that decision, which was expressed by many others in the consultation, was twofold. The first aspect was that employers should be given incentives to properly fund their pension plans. This is what solvency funding is about. The solvency funding regulations are there so that pension obligations will be respected as much as possible in the event of a bankruptcy, and the responsibility should lie with the employer who is providing the pension.

Also, it is common in these cases, especially if there is a large bankruptcy, for the guarantee fund to be exhausted. It is backstopped by the government, and there is a view that it is inappropriate for taxpayers in general to take on this role.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Were any suggestions made in regard to how you encourage employers to be responsible and ensure solvency of their plans?

[Jeremy Rudin]

In the proposals the minister put forward, there were a number of additional incentives for employers. One was to increase the ceiling on the tax-deductible contributions to the solvency fund in order to encourage a greater margin. Another was the option for employers to use properly funded letters of credit in place of cash investments. This can be more attractive to employers, and it is no less secure for employees. In addition, the government will propose to reduce the volatility of the calculation of solvency payments, and this should make those payments more manageable for employers without penalizing benefit security.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

In the event of bankruptcy, companies are allowed to put pension funds owed to workers behind the money owed to creditors. Since this is very often a devastating practice that deprives pensioners of what they expected to have at retirement, would it be helpful if pension funds had the same standing as other creditors? In other words, would it be helpful if pension funds were moved ahead to the front of the line?

[Jeremy Rudin]

Funds that an employer has already put into a solvency fund are protected in bankruptcy, and they go to fund pensions. Amounts due from the employer to the fund that have yet to be remitted, such as a payment due on Tuesday after a company failed on Monday, are also given priority in bankruptcy. It is not the case, however, that the full unfunded amount on the solvency calculation, should there be any, ranks ahead of other creditors.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Would it be helpful if it did?

[The Chair, Liberal, Hedy Fry]

You can very briefly answer: would it be helpful if it did?

[Jeremy Rudin]

I will be hard-pressed to do justice to this in ten seconds.

There is a very significant trade-off between the company's ability to borrow and fund its operations and its prospective obligations in bankruptcy that would rank ahead of that other funding. If there are many things that rank ahead of the other borrowing the company needs to grow and operate, it will be difficult for the company to grow and operate. That's the fundamental trade-off faced in determining the degree of bankruptcy protection for pension assets and pension payments.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

Ms. McLeod.