Evidence of meeting #22 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was retirement.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Daniel Béland  Canada Research Chair in Public Policy, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan, As an Individual
Keith Ambachtsheer  Director, Rotman International Centre for Pension Management, As an Individual
Edward Whitehouse  Head of Pension Policy Analysis, Social Policy Division, Organisation for Economic Co-Operation and Development, As an Individual
Arlene Borenstein  Representative, Rights For Nortel Disabled Employees

4:50 p.m.

Director, Rotman International Centre for Pension Management, As an Individual

Dr. Keith Ambachtsheer

I assume the question is to me.

4:50 p.m.

Liberal

Mark Eyking Liberal Sydney—Victoria, NS

Yes.

4:50 p.m.

Director, Rotman International Centre for Pension Management, As an Individual

Dr. Keith Ambachtsheer

Thank you.

I don't think we need to look at other countries; we just need to look at the fundamental concept of insurance. If we want to apply the principle of an insurance promise that's going to be kept, it has to be funded. If you go to the notion of allowing companies to self-insure when clearly there's a probability of bankruptcy there, then you have significant exposure on the part of these employees, and as was pointed out, they're not even aware of it.

So we clearly have a chink missing here in the insurance concept. I just don't think it makes sense in our country to allow these kinds of benefits to be self-insured. They either have to be separately funded and a trust fund set away by the company itself or the insurance has to be done with a third-party insurer that comes under the insurance regulations.

4:50 p.m.

Liberal

Mark Eyking Liberal Sydney—Victoria, NS

But the money has to be protected.

4:50 p.m.

Director, Rotman International Centre for Pension Management, As an Individual

Dr. Keith Ambachtsheer

That's what we should do prospectively. There's still the retrospective question of what we do with people today who didn't have the benefit of that kind of protection. That's a separate issue.

4:50 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you.

Thank you, Mr. Eyking.

Monsieur Paillé.

4:50 p.m.

Bloc

Daniel Paillé Bloc Hochelaga, QC

Thank you.

Sometimes the government imposes a number of things on us at the same time in parliamentary terms. The committee's two vice-chairs had to be in the House speaking on Bill C-9. That's why you sometimes see this round table.

I'd like to ask Mr. Béland my first question.

On page 4 of your brief, you say: “While CPP is fiscally sound for the predictable future, this is not the case of QPP, which should face real fiscal challenges starting in the 2040s, and perhaps even earlier.” You say that the QPP “should face” challenges, which, in my view, is a little too affirmative. I would have said that it “might” face challenges. I note a reference in one of your endnotes entitled “Débâcle à la Caisse: Que faire avec le Régime de rentes du Québec?”

You know that the Quebec Pension Plan is managed by the Caisse de dépôt et placement du Québec, where the pensions are deposited. The caisse makes investments, as its name suggests. Yes, there has been a collapse. Some have even said debacle.

In view of the fact that the new administration of the caisse seems to be managing its risks in a more appropriate manner, aren't you trying to scare people somewhat by saying that the Quebec Pension Plan will be facing enormous challenges starting in 2040?

4:55 p.m.

Canada Research Chair in Public Policy, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan, As an Individual

Daniel Béland

Did I say “enormous”?

4:55 p.m.

Bloc

Daniel Paillé Bloc Hochelaga, QC

No, but the fact that you used the words “should face” led me to add the word “enormous”. To use one of our popular expressions, it's like scaring people.

4:55 p.m.

Canada Research Chair in Public Policy, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan, As an Individual

Daniel Béland

I wrote the brief in English, and then it was translated. I don't know what term I used in English.

4:55 p.m.

Bloc

Daniel Paillé Bloc Hochelaga, QC

We are in a bilingual country for the moment, and as you speak very good French—

4:55 p.m.

Canada Research Chair in Public Policy, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan, As an Individual

Daniel Béland

Look at what I have here. This is a document from the Quebec Pension Plan that was published in 2008, before the financial crisis. It states that there will be significant problems starting in the 2050s. It's in the documents that were published before the financial crisis, before the debacle at the caisse. I also referred to the QPP document. The one I cited was published before the crisis, and that's why I said “perhaps”. I'm sticking with the conditional. The year appearing in the text I saw was 2037. I don't know whether that's realistic. That year is already partly erased by the returns that were higher the following year, and so on. I'm entirely aware of that. It would be preferable to say “should” rather than “will”, I agree. I couldn't find what I had written in English. Whatever the case may be, it's preferable to use the conditional.

4:55 p.m.

Bloc

Daniel Paillé Bloc Hochelaga, QC

I was thinking, since you were so affirmative, that you could leave your career at the University of Saskatchewan and make a lot of money by making investments and ensuring a good return.

4:55 p.m.

Canada Research Chair in Public Policy, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan, As an Individual

Daniel Béland

No. There is the return issue, but you have to be careful. There are nevertheless demographic realities. I'm talking to you about a Quebec Pension Plan report that was published in 2008, before we received the results from the caisse for that year, even before the financial crisis. So they were already talking about significant problems. On the other hand, if adjustments are made quickly, those problems can be solved.

4:55 p.m.

Bloc

Daniel Paillé Bloc Hochelaga, QC

That's it. You previously emphasized that, if the governments... You said: “It's therefore important to examine...” You also said: “With higher benefits...” We seem to be comparing apples and oranges, or not to be putting the Canada Pension Plan and the Quebec Pension Plan on the same footing.

As the allotted time is very short—

4:55 p.m.

Canada Research Chair in Public Policy, Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan, As an Individual

Daniel Béland

It's more or less the same thing for pensions. It's the same replacement and contribution rate for the moment. I'm saying that we have to try to work together to solve the long-term financial problems with regard to the Quebec Pension Plan and to improve pensions for all Canadians. I'm not saying that—

4:55 p.m.

Bloc

Daniel Paillé Bloc Hochelaga, QC

Pardon me for interrupting you, but I would like to ask this gentleman we see on the screen a question. I imagine he is in Toronto.

We've talked at length here about the ability of businesses to finance themselves if pensions were considered as deferred salary, if protecting the pension plan was a priority, that is to say in case of bankruptcy, creditors, such as the people from Nortel, could have priority over everyone.

Have you conducted any analysis to determine whether or not corporations would be in financial difficulty or wouldn't be able to finance themselves, as the urban legend suggests?

4:55 p.m.

Conservative

The Chair Conservative James Rajotte

Mr. Ambachtsheer, we've got very little time, so could you answer that very briefly, please?

4:55 p.m.

Director, Rotman International Centre for Pension Management, As an Individual

Dr. Keith Ambachtsheer

I haven't done the analysis myself. I know of analyses other people have done. In fact, maybe our speaker from the OECD is better positioned to answer this question. I know that the priority requirement does exist in some European jurisdictions. My understanding is that it has not stopped those companies from being able to finance their operating requirements.

I think it's more that if you retroactively change the credit standing, then that's an issue, but if you make it clear before the fact, it becomes a different situation.

5 p.m.

Conservative

The Chair Conservative James Rajotte

Okay. Thank you.

We'll move on to Mr. Wallace, please. You have five minutes.

May 27th, 2010 / 5 p.m.

Conservative

Mike Wallace Conservative Burlington, ON

Thank you, Mr. Chair.

I want to thank our guests for being here, particularly our guest from Paris, because I understand it is relatively late in the evening there.

Let's put on the table what we've been hearing over the last little while on these pension meetings. One option is supplementary, adding to the CPP, in terms of contributions from the employer and the employee to basically double that. The second option is a voluntary addition to the CPP whereby individuals can decide whether they want to partake in that, which I don't see as being any different from the individual deciding to invest in an RRSP, to be perfectly honest with you. The third option we're hearing from the private sector is to deal with having the private sector take a more robust role, multi-employer plans, and so on. They want an automatic enrolment program so they get everybody's money. Then there are the costs associated with that. Those, in a nutshell, are what we've been talking about.

I want to ask Mr. Whitehouse, from his experience and knowledge of what's happening around the world in terms of the administrative costs of a voluntary plan over a non-voluntary plan... I know New Zealand has made some changes recently and added a pension plan; I know the United Kingdom has had some issues. What are we seeing happening elsewhere as we do our study on this pension issue?

5 p.m.

Head of Pension Policy Analysis, Social Policy Division, Organisation for Economic Co-Operation and Development, As an Individual

Edward Whitehouse

Thank you very much. It is indeed 11 p.m., but I'm a night owl anyway, so I'm quite happy to stay up and talk to you.

I think in terms of cost, many countries have been trying for a long time to bear down on the cost of offering private pensions. If you have mandatory private pensions, which is the model followed in Chile and elsewhere in Latin America, and it's also very common in central and eastern Europe, in those cases where you have a limited number, a small number, of competing private sector providers--somewhere between 10 and 25 is the norm--there the lowest you can get the cost down to is something like about 0.7% of assets per year.

I mentioned briefly that in Australia and the U.K., which, very much like Canada, had a system of voluntary personal pensions, voluntary individual accounts, the costs were typically around 2%. Australia has moved toward multi-employer schemes, toward industry funds, and they're a much lower cost; they're of the order of 0.5% to 1%. The U.K. has moved, first by regulation, by simply capping their charges at 1% and is now moving to having a much more centralized structure.

Many of the options you offered at the beginning...I think there is a difference between a voluntary contribution to CPP in addition to a compulsory contribution. You're buying a defined benefit rather than having a defined contribution plan, so the CPP is in essence bearing the investment risk for you.

This is something of a distinction there, but I think in terms of getting the charges down, to get to low charges, and I'm talking here of 0.3% to 0.5%, you need a much more centralized system and a centralized clearing house for collecting contributions and some centralized contracting out of asset management.

There are two examples I would suggest you look at there. The clearing house model is the example of Sweden where a cost contribution for the compulsory private pensions are low, they're only 2.5% of earnings. They've got to be very careful to keep costs low. The other example is the Thrift Savings Plan in the U.S., which is a defined contribution scheme for federal employees in the U.S., where the costs are absolutely tying them down at 0.1% to 0.2% of assets.

5 p.m.

Conservative

Mike Wallace Conservative Burlington, ON

Are there any comments from Toronto?

5 p.m.

Director, Rotman International Centre for Pension Management, As an Individual

Dr. Keith Ambachtsheer

Yes. I co-founded a company called CEM Benchmarking, which measures the pension costs around the world. We have very good data on global experience from a company based right here in Toronto.

If you take the Canadian numbers, for example, and divide them into wholesale and retail retirement savings--wholesale is CPP and all the employment-based pension plans, $1.1 trillion--the average cost there is 0.4% per annum. If you go to the retail sector, which now is the RRSP sector, then you get a wide range of experience, but the average experience is around 2%. So you do have this distinct difference between what I would call wholesale and retail approaches, and that's common around the world. You get the same kind of experience wholesale versus retail right around the world.

5:05 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you.

Thank you, Mr. Wallace.

Back to Mr. McKay, please.