Evidence of meeting #20 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was retirement.
A recording is available from Parliament.
10:15 a.m.
Conservative
10:15 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
I would like to welcome our witnesses.
We are dealing with an issue that is critical for the general public. We are talking about pensions. Employees who have worked all their lives and who are expecting to receive pension benefits could see them disappear overnight. We see what is happening right now with the automakers, where the market was previously quite solid. People are wondering whether they will receive their company pension. This is a big problem and a major worry for the public.
My first question is for Ms. Eng, who represents retirees across the country.
You talk about protecting beneficiaries and you make suggestions that seem to me to be very random and unlikely to be effective. In your second recommendation, you propose universal access to benefits for approximately one-third of Canadians. These would be people who did not manage to put aside enough money for their retirement. I find that a rather strange idea.
How would we determine who would benefit from universal access? Would it not be better to recommend that all employees receive a higher universal government pension, instead of asking the government to step in to clean up the mess caused by companies that do not meet their obligations?
10:15 a.m.
Vice-President, Canadian Association of Retired Persons
You're absolutely right.
The importance of the CPP is that it's mandatory, first of all, and that makes it extremely broad-based. It means people don't have the choice of spending all their money. They have enforced savings.
The other important aspect is it allows employers and employees to fully fund their own retirement, rather than waiting for taxpayers to come after the fact, as is being impressed upon us now in some jurisdictions. In some jurisdictions the government has to now take taxpayers' money from people who don't have any pension benefits in order to supplement and protect and retrieve the people who have found that their pensions are at risk. That's really one of the problems we're facing today that would be prevented, we hope, by having a universal mandatory plan going into the future. People could provide for their own retirement, and the mandatory nature means fewer people are going to be left without, contrary to their own best interests. That's why the CPP, over the years, has actually reduced the level of poverty in older Canadians, and that is really the proposal going into the future.
10:20 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
It would be an added plan that people could join to make up for employer plans that do not exist.
10:20 a.m.
Vice-President, Canadian Association of Retired Persons
Right, absolutely. As I say, some 29% of Canadian families don't have anything at all. It would address that group, it would address the people in the private sector, only 25% of whom have any access to defined benefit pension plans, and it would allow people to contribute to a universal plan instead of using their own best judgment and their own retirement savings expertise.
So the best model to look at is the CPP in an expanded form. The current CPP only covers 25% of pre-retirement income and only to a maximum of $46,000 of that pre-retirement income. If you expand both those numbers up to 70% of your pre-retirement income, which the experts tell us you need to have a comfortable retirement, and you expand the level of coverage of their salary to about $116,000, then you would match for everybody the comfort level of people who now have defined benefit plans.
10:20 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
On another point, some companies, like those represented by Mr. Vanaselja, come under federal jurisdiction. So you are subject to federal rules governing pension plans. Other companies have to follow provincial rules. What is the difference between the two? Are the federal rules better and more restrictive, or is there an equivalent regime in each province?
I would also like to hear from Mr. Lamoureux, who is an expert in this area.
10:20 a.m.
Executive Vice-President and Chief Financial Officer, BCE and Bell Canada, Federally Regulated Employers - Transportation and Communications (FETCO)
Yes, there are distinctions between the pension regimes of the various provinces in Canada versus the federal regime. There are differences between those Canadian systems and systems of other countries. And in the submissions we've made, we've drawn out some of the differences in those various systems.
For example, we believe today that the discount rate set federally has a significant negative bias. It is based off Government of Canada rates, as I said, at a point in time, and we believe that a truer measure of the discount rate is to look at investment grade bond yields over a smooth period of time. So today the federal government's approach would result in a discount rate that is approximately 4.5%. If we were to use that investment grade bond approach, it would result in a higher rate by 200 or 300 basis points, similar to U.S. and U.K. regimes.
10:20 a.m.
Conservative
April 21st, 2009 / 10:20 a.m.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Thank you, Mr. Chairman.
Welcome to our guests.
I have a thought process here and I'd just like to throw something open to all our guests. We've had discussion in the House and in Parliament generally with regard to the attributes and/or the desirability of having a national securities regulator. One of the reasons this was brought forward was to stop the patchwork of rules and regulations. Assuming that we were to swing this thought process around to pensions, right now, with the patchwork that is out there, the fact that the federal government only has or controls roughly 10% to 12%, as mentioned by Mr. Menzies today—I'm not sure of the exact amount—and the provinces handle the rest with the private, there's a lot of confusion among pensioners, sponsors, and regulators.
What are your thoughts on either the need for or the possibility of a national pension regulator? I'd ask for a response from everybody.
10:25 a.m.
Vice-President, Canadian Association of Retired Persons
The greatest impact in the securities regulation area is the impact on people who are handling their own investments. When their investments go down the tubes, they look to see what happened—whether the market was adequately regulated and whether they have recourse in the event that they have been subject to poor advice or sharp practice.
The national securities regulator purports to help with that, but in fact it is making it easier for companies to get their filings through. The sidebar recommendation for a national securities enforcement agency, which would actually enforce the regulations that currently exist and new ones that would protect the smaller investor, has not actually come to the table. Our recommendation is that the focus must be on the enforcement of the existing regulations, so that whatever good regulations you come up with, the investor is actually protected and has active recourse.
We have some concern that in this political climate there will be more cooperation but that, because it requires federal-provincial cooperation to create a national securities regulator, we may spend too much time waiting for that and not enough time on the enforcement piece.
10:25 a.m.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
That's fine, but swing it around now to the pensions. Mr. Lokivakis, do you see any potential gain in harmonizing this movement, or do you see pitfalls?
10:25 a.m.
Independant analyst, As an Individual
There is an absolute need for a national pension regulator that deals with both public and private pension plans. It's about time we get on to that. You can look at what is going on in the U.K. We have to start looking around the world to see what other countries are doing, whether it's the U.K. or the Netherlands, to address pension funds and the underfunded status of pension funds. Canada is one of the best countries in the world in terms of pension funds, but we have a lot more work to do. I think this needs to be addressed very quickly.
10:25 a.m.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Lamoureux, we've had some suggestions that increasing the Canada Pension Plan might present some solutions to this pension problem. We'll be taking a look at roughly 20% from employer and employee contributions. That's a lot of money out of the everyday citizen's pocket, particularly in times like these. Could you give me some of your thoughts on this proposal?
10:25 a.m.
Special Advisor, Canadian Institute of Actuaries
I think this is a good proposal. On the other hand, I don't think people should feel there will be no volatility in that pension plan. The danger is to think that CPP is going to be stable and everything else is going to be volatile. That's not the case. Once you invest in the market—and CPP is in the market, but their history is rather short—you have to be careful. Over time, once you're in the market, you're going to see volatility. People should not believe they are exempt from volatility. Clearly, there is a need to have wider coverage for Canadians' pension plans, because many people do not save.
For the teachers' pension plan, we produce an annual report of 100 pages. How many young people read that? Very few. How many old people? People get interested in pensions when they are above age 50, and that's the danger that I see in a lot of pension plans. The young people are not represented, and as a result the tendency is to improve the benefits, but nobody talks for the young people taking the risk.
10:25 a.m.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Kolivakis, when did we start this shift out of safe government bonds and then slip into equities and these alternate investment vehicles? It's all about risk. We as a society need to decide at some point where we need to go and where greed takes over. Where did we go wrong, and how long ago did this happen?
10:30 a.m.
Independant analyst, As an Individual
The big shift into alternative investments happened after the tech crash. There were pension funds like the Ontario teachers that got in early with hedge funds, real estate, and private equity, but the major shift happened after the tech crash of 2001.
I'd like to touch upon a point that Mr. Lamoureux just made. We can say we should augment CPP. My personal belief is that we should cap pension funds at a certain size. Yesterday, the chief of OMERS asked for more pension consolidation. Right now there is a jockeying for position with respect to who is going to get more assets. Will it be Ontario teachers or OMERS? I think it's time we start capping these large pension funds, including the Caisse de dépôt et placement du Québec, at a certain size. After a certain size, it becomes harder to deliver the returns that you're supposed to deliver.
I think we should start looking a little more at what's going on in Sweden. I want to emphasize that there is no perfect system around the world. We should cap pension funds and create new defined benefit plans based on the highest standards of governance.
10:30 a.m.
Liberal
Carolyn Bennett Liberal St. Paul's, ON
Thank you.
I have a question. Risk is one thing, but I think flexibility is what a lot of the people we've been talking to want. In particular, I'd like to start with the federally regulated sector. A lot of those people still would like to be able to work. Is it true that it's still the only area with mandatory retirement? If people want to keep working and then want to delay their pension.... My interventions have been from women who stayed home to look after their families and who now have a pretty modest pension. They would like to be able to keep working and delay that modest pension and have it accrue to be something worthwhile when they finally can't work anymore.
It just seems unfair that people working in your sector are still being subjected to mandatory retirement. But also, I think, people in lots of sectors would like to have the ability to delay their pension, since it's not added to their income, and then take their pension when they really need it; and hopefully it will have done well in the meantime.
10:30 a.m.
Special Advisor, Canadian Institute of Actuaries
Let me tackle that.
I think most provinces have removed their retirement age. What should be done, if you want--
10:30 a.m.
Liberal
Carolyn Bennett Liberal St. Paul's, ON
But the federally regulated sectors haven't. When I was the seniors critic, I could not walk through an airport without having an Air Canada attendant follow me, going, “Can't you do something, Carolyn, about this? I want to keep working.”
10:30 a.m.
Vice-President, Canadian Association of Retired Persons
Actually, CARP has a full position on that. It is true that in federally regulated industries, mandatory retirement still persists. The companies can't do anything about it, but they can petition the federal government to change the law with one fell stroke, which is what all the provinces have already done. They allow people to keep working when they need to or want to, and they provide a structured retirement so that they can defer their pensions until they need it.
