Status of Women Committee on Nov. 5th, 2009

[Alice Wong, Conservative, Richmond, BC]

Thank you, Mr. Chair.

My questions are related to the panel right here in front of me.

I would like to go back to the question of tax-free savings accounts. Just now we heard comments that immigrant women are at a disadvantage in many ways. Of course, when you look at immigration, it's very complex. People come in with different financial requirements. There's something called sponsorship. The whole idea of having some people being sponsored is that the sponsors have to be responsible for the well-being of these people, so that they would not take advantage of our social welfare benefits right away, because there's a reason for that.

In relation to immigrants who do not have a history of working and who therefore will not be able to contribute to an RRSP, a new product, the TFSA, has come out. People are making use of these things retroactive to January 2009. It includes the whole family. The parents of people who are 18 have already started putting money in.

This is probably a good way for immigrants to save money for the future. Am I right that it is a good way of saving, even for newcomers?

[Steve Bonnar]

Perhaps I can take that.

The tax-free savings account will help, but there is a key problem to think about.

The whole tax structure for retirement income in the country is based on this year's earnings. While there is limited carry-forward for RRSPs and defined benefit pension plans, if somebody comes here in mid-career after having had 20 years somewhere else, there's no tax-sheltered retirement savings room available with respect to those past 20 years, and as James was mentioning earlier, over the remaining 20 years of their career there isn't sufficient room to get to a level of income replacement. There needs to be some assumption that either folks are coming to this country with enough savings accumulated already to provide for that or else that the sponsor will be able to provide for it, but structurally there's nothing in the tax system that provides for it.

[Alice Wong, Conservative, Richmond, BC]

That's why I was saying that the TFSA fills the gap for those people. Every year they can continuously put money into that savings account. In other words, that might be a way to help these people. That's my question: will it be helpful to the newcomers? Now they don't have to be within a certain income bracket to be qualified to pay into it. That is actually a very good move to help those who don't have a history of employment in this country. Am I right to assume that?

[Steve Bonnar]

Again, it's a help, but it still doesn't replace the fact that for the individuals we're talking about, there was a significant period during their careers when they couldn't have contributed to a tax-free savings account because they weren't here, or when they couldn't have contributed to an RRSP because they weren't here.

[Alice Wong, Conservative, Richmond, BC]

Are you also aware that those who worked overseas might already have their own pensions elsewhere and be allowed to collect them over here? That's something some immigrants do bring into this country.

[Edward Whitehouse]

I'll add to that.

Most countries are part of a network of social security agreements that allow for the transfer of pension rights for migrant workers. What is very different is not only the starting point when people migrate into Canada, but how long they're going to stay. Are they going to stay and retire in Canada? I don't know what immigration patterns are in Canada. In the U.K. I think the pattern is of a strong inward migration, but people go off and retire in their countries of origin; therefore, there are rules within this network of social security agreements that allow people to transfer not only their rights, but also the years that they've contributed. These years can be used in another country as part of the qualifying conditions towards achieving those pension rights.

One loses count of the world's countries, but of the 180 or so, only about six do not have a national pension system. Most of them, through the International Labour Organization, are part of the network of arrangements, so in theory people should arrive with some pension rights from their country of origin.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Whitehouse.

We are at five o'clock. I have a section on the agenda that calls for committee business.

Is there any committee business, or shall we continue on?

Do you want to move this motion?

Then perhaps I can ask the guests if they are okay to stay until the end. I know we had mentioned, when we started the meeting, that there might....

We'll continue on to the next round, beginning with the Liberals.

Mr. McCallum, are you going to split your time, sir, with Madam Zarac?

[John McCallum, Liberal, Markham—Unionville, ON]

How much time is it?

[The Acting Chair, Conservative, Dave Van Kesteren]

It's five minutes.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay.

I'd like to ask Mr. Whitehouse a couple of questions in terms of international comparisons.

One of the issues in Canada is that people don't seem to want to save very much. We have the registered retirement savings plan, but only maybe 10% to 15% of the available room for tax deductions is taken up, which isn't very much.

Are we unlike other OECD countries? How do other OECD countries compare in that regard?

[Edward Whitehouse]

I don't have my notes from giving similar testimony yesterday, but I'll try to remember the numbers.

I think around one-third of the workforce has an occupational pension plan in Canada, which is a little bit below comparable countries. In the U.K., Ireland, and the United States that number would be around 40% to 45%. There's a smaller coverage of occupational plans.

On personal plans, Canada comes out rather better than somewhere like Ireland or the U.K. It's fairly similar to the United States in terms of coverage of RRSPs.

When it comes to contribution rates, it's very difficult to get data that would allow us to compare how much people are paying into these plans across countries, but our figures suggest that for people in defined contribution occupational plans, contribution rates are around 8% to 10% in the countries I mentioned--Canada, Ireland, the U.K., and the U.S. They are fairly similar.

The contributions to personal plans tend to be a lot lower. My feeling is that for Canada, on average, people with RRSPs are probably contributing something like 4% of their earnings to those plans, which is significantly less than people put into RRPs. I think that may well be similar to the average contribution rates for similar schemes in other countries.

[John McCallum, Liberal, Markham—Unionville, ON]

My last question is on pension insurance. I think it was Ontario, the U.K., and the U.S. that we heard were in deficit, and it's a problem. Many people argue that there's a moral hazard issue with pension insurance.

First, do you agree with that? Second, are there examples of pension insurance operating successfully among OECD countries?

[Edward Whitehouse]

In this area I have to be very careful with my words. I got myself into very big trouble with the pension protection fund in the United Kingdom earlier this year.

The first of these insurance-type programs.... We're talking about insurance programs to cover the liabilities of defined benefit plans of companies that go bankrupt when the defined benefit plan is in deficit. My understanding is that Nortel is the one that is of most concern nationally here.

The United States set up the Pension Benefit Guaranty Corporation in the mid-1970s. At the time there was a bankruptcy of this sort, which forced the political action of setting up the PBGC. Many distinguished economists have written about the PBGC, and as far as I can see, this insurance fund was essentially in very large deficit from day one when it opened. It really acted as a very large subsidy to airlines, steelmakers, and carmakers over the ensuing years.

The pension protection fund in the United Kingdom tried to learn some of the lessons of what went wrong with the PBGC in the U.S. In particular they have tried to risk-rate the premiums that companies must pay to the protection fund so that riskier funds are paying a higher proportion of their assets, but there's only so far you can go in increasing those levies before companies simply begin closing those schemes down.

I'm afraid that I don't think there is a good international example of one of these types of insurance funds. In theory--I'm not referring to any of them in practice, but in theory--they have the danger of becoming something like a black hole. They can suck in a lot of money very quickly.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you very much.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. McCallum.

Go ahead, Ms. Hoeppner.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Thank you, Mr. Chair.

Our goal in this study is to look specifically at pensions, but I think that overall we want to look at how we can help women and seniors who are retiring and make sure they are in a better situation than they have been in past generations.

You commented that the problem of seniors in poverty has changed dramatically. We heard testimony a couple of days ago that even for women it's changing, and that in the last 10 years there's been a marked improvement for women. My background is financial planning, and when I hear a lot about insurance, different pension plans, and tax savings, I think this is all about financial planning, about bringing everything together and looking at an individual's or a couple's circumstances and planning by knowing what they have, what their risks are, what the future holds, and what expenses they have. It's a huge picture that we need to look at.

I'm wondering what role you think the government has in encouraging financial education. I'm not here to promote financial planners; at the same time, if we were talking about health issues, we would be informing individuals that one of the things they need to do is see a professional, a doctor.

What role do you think we have in encouraging that? Has that been missed? Are many people missing out by doing planning on their own, without looking at the totality of their circumstances? Can you comment on financial education, how it can benefit people, and what role it plays, as well as comment on financial planning?

[Beverley Smith]

That's possible; I'm a schoolteacher, and we're very concerned about math education. We have sometimes found that there is a problem with--sorry for saying it--even some teachers in understanding finances.

It is very important that we get young people to think of planning for the long term. Good luck with that, because kids tend to think short term, but that's the only window we have to actually get the general public to think about it.

I think we have to do a lot more to regulate our regulators and our advice-givers, because some of them have given us some very unscrupulous advice. We need something very stringent about that. However, I do believe the secret for it is in getting right into the schools and making math fun. Obviously I believe that kids can think this way.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Mr. Whitehouse.

[Edward Whitehouse]

I agree with Ms. Smith that what we want is for people to be numerate, first and foremost.

I will be going to Washington in 15 minutes, and we are having a conference this week on financial literacy and financial education. I'm something of a skeptic on this, in that the literature on behavioural economics, which has become very fashionable these days and deals with how people make decisions in that area, demonstrates that even people who are fully informed and fully financially educated actually make all the wrong choices. There's a whole long list of things with technical names like “myopic loss aversion”, and so on, that suggests people actually do not make rational financial choices.

I've been working on pensions for 20 years now, but I do not really want to make active investment decisions, and so on; I want someone else to deal with that for me.

I think a great deal of attention needs to be paid to the defaults, because most people are going to end up in whatever the default is. It may be the default contribution rate or the default investment strategy, and so on, and we need to make sure those are very sensible, because in many countries they are not. For example, in Australia two-thirds of the people go with the default investment option offered by their private pension provider. All of those are simply one-size-fits-all; it's the same investment strategy for everybody. It's about 60% in equities and 40% in bonds. Now 60% in equities, for me, is rather too risky for people who are close to retirement, but not risky enough for people who are younger, because you are sacrificing some of the return.

It seems to me that we should have a life cycle investment strategy as a default investment strategy, and that somehow people should be guided towards that. The idea that we can turn everyone into being their own financial planners is a bit of a--

[Candice Bergen, Conservative, Portage—Lisgar, MB]

No, and I'm sorry; that actually was not what I meant. I actually think that's where we need to have honest and scrupulous financial planners, because that's part of what they do. They look at the risk tolerance, they look at where individuals are, and they make decisions based on that. In Canada we have some good financial planning companies that are complying with regulations in making sure that the risk is tolerable, but I'm actually talking about financial education. Part of that is using a professional financial planner to look at the pension, look at insurance, and look at the tax situation.

That's more what I was referring to, rather than the idea of somebody being their own doctor.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

That's all?

[The Acting Chair, Conservative, Dave Van Kesteren]

Oh, yes; your time has run out.

Go ahead, Monsieur Desnoyers.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

That's fine. I don't have any other questions to ask.

[The Acting Chair, Conservative, Dave Van Kesteren]

Madam Faille, do you have a question?