Finance Committee on April 28th, 2009

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

That is perfect; we will receive copies later on.

[Renaud Gagné]

You will have all of the recommendations.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

It is very important to have all of the recommendations.

Mr. Auclair, given your testimony, you are basically acting as the spokesperson for thousands of forestry and paper workers in Quebec. You talked about the 22,000 workers in Quebec, and the 50,000 workers throughout Canada. The examples that you gave us are striking. You are telling us that you run the risk of losing one-third of your pensions. After one has worked for 30 or 40 years in a factory, one expects to enjoy a pension to see them into their golden years and take part in community living, in general.

Could you elaborate on the consequences of all this?

[Germain Auclair]

On average, a pensioner receives approximately $30,000 per year. If we chop off one-third of this income, a pensioner has only $20,000. The most likely effect is that the pensioner will be forced to cut his or her expenses. Some might even have to declare personal bankruptcy. In addition, the many pensioners who do not currently have access to the Guaranteed Income Supplement will have to resort to it. Yet, this money could have been spent elsewhere and used more effectively.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

What you are saying then, is that, had the federal government provided guaranteed loans—and this ties into what Renaud Gagné was saying—and saved the factories from shutting down, it would have perhaps saved money later on in terms of old age security payments and the Guaranteed Income Supplement.

[Germain Auclair]

Take, for example, La Tuque, which is a single-industry town, and Matane, which is practically a single-industry town. There are many such towns throughout Quebec, which subsist on that main industry alone. When an industry goes bankrupt, entire communities and villages are dismantled; ultimately, it is the government that has to pick up the pieces because people must turn to social assistance, the Guaranteed Supplement Income and so on.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I will tie your answer into my question for Mr. Ménard.

You are the chief actuary of the Office of the Superintendent of Financial Institutions. I understand that we are currently experiencing an economic crisis that many did not see coming. We have our doubts because it depends on when the various forecasts were assessed and made.

When you undertake this type of forecast, do you assess whether it will be less costly for the federal government to save factories as a way of pre-empting social payments down the road?

[Jean Claude Ménard]

Thank you for your question.

The situation described by Mr. Gagné and Mr. Auclair is very unfortunate. It is true that when there is a drop in private pension income, the government provides compensation. For every drop of one dollar, 50¢ is paid by the Guaranteed Income Supplement.

In the actuarial report, we take into account the number of applications for the Guaranteed Income Supplement, and the number of low-income retirees claiming it at 65 is much lower than it is a at age 75 or even 85. We also show this trend line over time.

One of the reasons for this is that many pension plans are not indexed to inflation. So, as the beneficiary ages, they are no longer eligible for the Guaranteed Income Supplement. When international organizations see what is happening in Canada and compare it to the situation in other countries—despite the fact that it is never an objective to receive a full pension and the Guaranteed Income Supplement—they note that, in the low-income group of people aged 75, 80 and 85, Canada's performance is even better than that of other countries. So, the Guaranteed Income Supplement is very useful in that regard.

We studied the trends over the last 15 years to come up with these projections. We noted a reduction in the Guaranteed Income Supplement in the long term.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair, and thank you to our witnesses. It's good to see many of you again. I met most of you during the pension consultations. It's good for everyone to hear this, and it's good to repeat some of these messages publicly.

I was quite pleased to hear Ms. Warmbold remind us that:

...the portfolio we manage today is not being used to pay benefits today. In fact, it will be another 11 years before the money from the fund will be required to help pay pensions.

There's an urban myth out there that when our kids get to Canada Pension age there won't be anything left, and I think we need to get your message out to Canadians even more. So hopefully this appearance and this process will do that.

Mr. Ambachtsheer, you're a renowned international expert on pensions, and now you're referring to expanding the Canada Pension Plan. As of today, do we have adequate governance in place if the economic downturn continues? We understand that these folks have good investment practices--probably better than some of the other performers. Do we have adequate governance in place for the Canada Pension Plan to make sure it is secure, in your view?

[Keith Ambachtsheer]

If you look at the pension system from a governance perspective, it's actually quite fragmented. We have some very fine large-scale institutions that are very well managed, and I would put the CPP Investment Board into that category.

My recommendation, by the way, is not to expand the Canada Pension Plan as it currently exists. My recommendation is to do a supplementary add-on, which I think should be set up as a separate arm's-length organization. I know we can do this. We can create an organization that will be scaled, well managed, and at arm's length.

We have a number of other great pension institutions in Canada that people from all over the world come to study for their effectiveness. However, we also have a significant part of the system that's still being managed through much smaller entities: much less well governed and much more expensive. There is no uniform “Yes, everything is wonderful”. We have a fragmented system. That's why one of my planks is to figure out what to do and how we can get these less-managed pieces of the system into a more well-managed component.

There are two regulatory processes in the world that are consciously moving their systems in that direction. One is in the Netherlands and the other one is in Australia. In both cases the regulatory processes are starting to set higher standards for governance. If the pension plan can't meet those standards, then they're forced to merge with a larger, better-managed organization. I think we should look at that idea.

[Ted Menzies, Conservative, Macleod, AB]

At what point do we get too large? At what point does a fund...? Frankly, I'm going to be very honest here: I'm concerned that the provinces are looking to us to take over their liabilities.

At this point, as a federal government, we only regulate 7%. It was referred to the other day, and again today, that the provinces are looking to us to take on those liabilities. Frankly, we don't want to take on those liabilities. We didn't acquire them. We didn't regulate them in the first place. Why would we take on the liability?

When does this pension fund get too large so that it actually becomes a market mover? Then we bump into investment rules, and we've got investment rules in place already.

[Keith Ambachtsheer]

It seems there are two issues there.

One relates to the scale: can you get too large? In principle, the answer has to be yes. The practical question is where that limit is. If you look at our large institutions managing $100 billion, on a global scale it's actually not very big. ABP, in the Netherlands, manages $350 billion in its public service pension plan. TIAA-CREF, in the U.S., manages $350 billion. We're not at a stage yet, on the asset side, where we need to get worried, because we are international investors. That's one thing.

The other point you make around the federal government taking over liabilities really plays into this insurance question as to whether pension benefits should be insured. Of course, that's sort of an ex ante question. In principle, there's also an ex post question of what we do about where we are now. That's where you get into potential wealth transfer issues. The point is that whatever we do for members of registered pension plans, we must do the same for those who are not members of pension plans--holders of individual RSPs. You cannot look after five million workers and not look after the other five million.

[Ted Menzies, Conservative, Macleod, AB]

I have one minute.

To follow up on Mr. McCallum's question, how do you get there? You said it: how do we get there from here? Who pays? If you put a dollar in today, it's not going to impact those we're trying to deal with in the immediate term. How do we prepare for that?

[Keith Ambachtsheer]

I think you have to use standard reorganization principles. That is, if something doesn't work financially, how do you reorganize so it does work?

There are certain rules that are followed in a corporate context--CCAA--in terms of reorganizing corporations, and we need to apply the same principles to pensions. Basically, if this is where we want to go, how do we reorganize to get there? In many cases, as I mentioned with the members of registered pension plans, most of those plans can transition into something that is more sustainable over time. I would use CN, for example, because they are financially strong and they have the capability of doing that.

Unfortunately, there are other situations where pensions are only part of the problem. In those situations, I don't see anything other than a general reorganization that includes the pensions. It has to be worked out as equitably as possible, given that there's not enough money to make everybody whole.

[The Chair, Conservative, James Rajotte]

Thank you.

I'm sorry, Mr. Ambachtsheer, but Mr. Menzies is out of time, so we'll have to follow that up in a further round.

Monsieur Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you very much, Mr. Chair.

I, too, would like to welcome our witnesses today. I would like to start by addressing the representatives of the Communications, Energy and Paperworkers Union of Canada, because it represents our employees. The NDP is proud to be the only political party on the Hill whose employees are unionized, and you do an excellent job representing them. I also wanted to say that, for our part, we will do everything we can to assist you. You have put your finger on the real problem with the current crisis. There are people who have saved their whole lives, who have set aside part of their wages for their retirement, and who are now having this money stolen from them. That is unacceptable in our society. I would like to thank you for the tone and content of your presentation.

My first question is to Ms. Warmbold and Mr. Raymond.

Ms. Warmbold, I would like to ask you some questions, but your name is not in last year's annual report. So I will instead address my question to your colleague, Mr. Raymond.

Mr. Raymond your base salary is $325,000 a year. At least, that is what appears in the 2007-2008 annual report. Is that correct?

A nod of the head will not appear in the record.

[Donald Raymond, Senior Vice-President, Public Market Investments, Canada Pension Plan Investment Board]

Yes, that's correct.

[Thomas Mulcair, NDP, Outremont, QC]

Do you realize that your base salary is greater than the base salary of the Prime Minister and the Chief Justice of the Supreme Court?

[Donald Raymond]

I was not aware of that.

[Thomas Mulcair, NDP, Outremont, QC]

You are now.

[Donald Raymond]

Okay.

[Thomas Mulcair, NDP, Outremont, QC]

In 2007-08, you were also paid a several-million-dollar bonus. Is that correct?

[Donald Raymond]

That's correct.

[Thomas Mulcair, NDP, Outremont, QC]

This year, we've just learned through your colleague, Madam Warmbold, that in the first three-quarters of fiscal year 2008-09, you've lost $13 billion. We don't know what the final result is, and we won't know that for another couple of weeks. Is that correct?