Finance Committee on May 7th, 2009

[Ken Georgetti]

That's correct. In fact about 89% of our members enjoy a pension plan. Only 23% of people not in unions have a pension plan. If they don't, they have RRSPs. We have a chart at the back of our brief that shows you how much of your investment gets chewed in those usurious fees on RRSPs with no guarantee of a benefit at the end.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Hall Findlay, please.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Welcome, everyone.

My first question is to Mr. Braniff and Monsieur Dussault.

Mr. Dussault, at previous meetings, we talked

about compensation for the managers of the CPP investments and the size of their bonuses. Do you have any comment to make on that?

[Bernard Dussault]

Yes, I have two comments. First, there are a lot of criticisms that the remuneration of the CPPIB officers is too high. This is a concern, because it represents millions of dollars, but the biggest concern that I see personally is that their remuneration includes performance bonuses. This opens the door to taking risks that are too big and that have given rise to billions of dollars of losses on investment. Those performance bonuses are of much greater concern to me than the high remuneration.

They are both concerns, but my view of bonuses is that whatever type of job you have, you should be paid a salary only. If you do the job well, you keep the job; if you don't, you're given a chance, or otherwise you lose your job.

[Some hon. members]

Hear, hear.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you very much, sir.

This is a question for Mr. Braniff or both of you, in particular on recommendations for a universal pension plan. You may have said this in your presentation, but there's been so much this morning that I may have missed it. Is there a recommendation that if there's a universal pension plan, Canadians universally be required to contribute--that there be mandatory contributions for all Canadians?

[Dan Braniff]

We are prepared to say that the enhancement of the CPP looks like the best model now. One of the things we insist on, and I think you heard from the Premier of Ontario asking for it, is a pension summit. We think that this is where we could deal with these particular issues.

Concerning the enhancement of the CPP, the CPP is something we already understand. Perhaps it's something that would evolve. Maybe you start with a CPP enhancement and then go from there. We think this has the probability of solving many of the other problems that I've heard this morning--that is, what about the onus on future generations? I think that within the CPP we can look after that. We have to look for our children and grandchildren to be the people who get the reward.

I think the CPP enhancement, however you do it, should include a provision whereby it could be the refuge, if you will, for the wind-up of other pension plans. You would have a provision, for instance, for the Air Canada plan at the right junction to move over, with whatever degree of insolvency it had, and enjoy a refuge for a period of time, or maybe in perpetuity.

[Martha Hall Findlay, Liberal, Willowdale, ON]

That might be an interesting concept. Clearly the issue needs to be looked at further, from the testimony we've heard.

However, my question really goes to that fine line between contribution during the course of a working life—whether it's through a union, the government, or the CPP—and moving to a universal pension plan: the fine line between everyone simply paying taxes and some of that tax revenue in the government going to all Canadians at a certain time of their life.

There is a philosophical difference there, and I wondered if you would care to comment. Basically, people contribute to pension plans now through their work, whether it's from the employer, the employee, a combination, or through the government plan. However, the concept of a universal pension plan may actually go beyond that. Is there a concern that it then just be a tax?

[The Chair, Conservative, James Rajotte]

Make just a brief response.

[Dan Braniff]

I think there should be a provision for this to be set up over a period of time. We speak to employers as well as our own constituency, and we think this has already been done with CPP; it has been phased in. We think employers already know how to bring this into balance, when they sit down with their union or their respective employee representation to make the adjustments, so that it doesn't look like a tax, as you describe it.

I would prefer not to call it a tax; it's a mandatory contribution.

[Martha Hall Findlay, Liberal, Willowdale, ON]

My time is up. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Lessard, you have five minutes.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Thank you, Mr. Chairman.

I want to welcome the witnesses and thank them for their contribution to our debate this morning.

Of course, there are a number of questions. We know the role that DBRS played as a bond-rating firm in the choice that was made by the Caisse de dépôt et placement du Québec. We know the confidence that was placed in DBRS.

Do you think these bond-rating firms should also be accountable for their opinions? If so, how? They're in business and they have a responsibility. If they were to be accountable, how could they be?

[Claudette Carbonneau]

That's an excellent question. I would tell you that, barely a few weeks ago, we were thinking about the crisis, and the entire issue of bond-rating services was a prominent feature of our debate. There does not appear to be any framework for supervising them in any way whatever. This is a concern for us.

I admit that, without having completely answered the question, we considered the role that an institution like the Bank of Canada, for example, could potentially play in this type of oversight. The existence of these bond-rating agencies—we saw this in the context of the entire commercial paper issue—creates a false sense of security that can have utterly disastrous effects on many social safety plans or pension plans.

So, in that respect, we are in favour of a form of oversight of these bond-rating agencies, at least through regulatory authorities, and we want to advance our thinking on the role that could be played in this regard by the Bank of Canada.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Mr. Georgetti, do you share that view?

[Ken Georgetti]

Yes, I think that scandal deserves a lot more scrutiny than it's had so far. We were buying instruments that were rated at the highest level of security by a bond-rating agency, yet nothing has been done except for some secret meetings where they've mitigated, or tried to mitigate, the losses.

These are the same people who have been investing our defined benefit pension plans and have now put them in a position where they're in trouble. That's part of the problem for Canadian workers. We have to rely on people to invest our retirement income or retirement funds, and the people who invest them are the same ones who gave triple-A ratings to asset-backed commercial paper.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

The Income Tax Act denies employers the right to contribute to a defined benefit pension plan where the plan has a surplus that exceeds 10% of liabilities. The C.D. Howe Institute has issued an opinion that, in tough times for economic productivity, that 10% should normally be increased to provide better insurance for the pension fund.

Do you agree that this 10% limit should be increased or simply abolished?

[Claudette Carbonneau]

I'm going to ask Nathalie Joncas to answer that question.

[Madam Nathalie Joncas]

Yes, indeed, in the best times, we need to increase reserves, thus to increase this 10%, because we realized that 10% was not enough during periods such as those we've experienced. It's good for the plans in place, but I believe you have to go further to try to find other models.

This 10% or 20% is good for the models we currently have, but there are also other ways to lower the risks associated with pension plans which would also replace an increase in this 10%. The legislative framework should be changed to add other ways of preventing deficits. So we should find other methods, but the 10% should definitely be increased.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Lessard.

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much, Mr. Chair.

Mr. Georgetti, to begin, I have a couple of questions on the brief you submitted.

One of the recommendations you make is to increase the CPP from 25% to 50% of the average industrial wage. Have you costed how much we would have to increase premiums to Canadians to accomplish that?

[Joel Harden]

If you don't mind, Mr. Del Mastro, at the table we have a former CPP chief actuary.

Using the rough estimates we've done, if the current contribution rates per worker and employer are 4.95% and we want to effectively double the benefit, a conservative assumption would be that you'd have to double the contribution. What we've argued is that the CPP, unlike the RRSP industry, has really good value: it's portable, it's inflation-protected, it's suitable for the current economy. If we allowed it to gradually replace the under-performing RRSP industry, workers are going to be able to retain more pension income instead of paying it out to executives on Bay Street.

But as far as the precise calculation is concerned, I think Bernard Dussault is probably best positioned to answer that.

[Bernard Dussault]

The current contribution rate for the CPP is not based on full funding, so if we doubled the contribution rate, the benefits would be more than double, because the expansion would be done on a fully funded basis. When you fully fund, you pay ahead of time and you don't have to put as much in the plan. So if the contribution rate were doubled, the benefits would be increased not from 25% to 50%, but from 25% to 70%. That would be enough.

[Dean Del Mastro, Conservative, Peterborough, ON]

So, double that? Okay.

[Bernard Dussault]

Yes.