Finance Committee on March 23rd, 2010

[The Chair, Conservative, James Rajotte]

I call the meeting to order. This is meeting number four of the Standing Committee on Finance. We are continuing our study with respect to retirement income security of Canadians.

Colleagues, we have votes at 5:30, so we will have to leave here at 5:15.

We also have a motion by Mr. McCallum, which I propose we deal with at the end of the meeting, perhaps at 5 p.m.

So we do have a shortened time, and for that I apologize to our witnesses ahead of time.

We have with us today a number of organizations and one individual. We have the Ontario Municipal Employees Retirement System, the Air Canada Component of the Canadian Union of Public Employees, the Canada Pension Plan Investment Board, the Canadian Bankers Association, the Canadian Life and Health Insurance Association Inc., and as an individual we have Monsieur Jean-Pierre Laporte, lawyer. Welcome to all of you.

We will begin with the Ontario Municipal Employees Retirement System.

I ask that you keep presentations to between five and seven minutes to allow for the allotted time for questions from members.

You can start, Ms. Brown, please.

[Jennifer Brown, Executive Vice-President and Chief Pension Officer, Ontario Municipal Employees Retirement System]

Thank you.

It's a privilege to be here today. I'm Jennifer Brown, chief pension officer at OMERS Administration Corporation, which is responsible for OMERS' investment plan administration and member services. OMERS also has a sponsors corporation, which is responsible for plan design, benefits, and contribution rates.

With me today is Ian MacEachern, our director of government relations.

OMERS is perhaps Canada's leading example of a successful, multi-employer defined benefit plan, serving over 928 employers in municipalities, school boards, children's aid societies, police and fire departments, and other local agencies across Ontario. The multi-employer model pools costs and risks.

On the other side of the table are 290,000 active members. Fully one out of every 20 people working in Ontario is an OMERS plan member. We currently provide pensions to more than 110,000 retirees. There are more than 40 umbrella groups, representing OMERS' unions and employee associations, and over 600 locals.

Our model was built from the bottom up, step by step, over a long period of time. OMERS has been jointly funded by employers and plan members since 1962. It has been jointly governed since 1968. OMERS is also a jointly sponsored pension plan. Under our model, employers and members have an equal voice at the boardroom table. They share direct responsibility for all major decisions and the plan's success.

Broadly speaking, we conduct our pension and investment activities within the confines of both Ontario and federal pension and income tax legislation. Our job is to invest contributions and the investment income we generate to secure members' retirement benefits. OMERS' highly skilled investment professionals manage over $47 billion in net investment assets that generate the income necessary to pay pensions. About 70% of pension costs are paid by investment returns, while the other 30% is shared through contributions by employers and members.

One priority of our strategy is to organize long-term access to capital. This will enable us to acquire larger-value investments that we would not otherwise acquire due to risk management considerations.

The Ontario government expanded OMERS' powers last year to enable us to offer investment and administration and management services to a wide range of potential clients inside and outside of Canada, including public and private sector pension funds, governments and their agencies, corporations, colleges, universities and their endowments, and registered charities. The breadth of these legislative powers acknowledges our ability to deliver such services to others, but more importantly, it allows others the advantage we have in relation to plan administration capabilities and investments.

During the course of the last two years, the adequacy of pension coverage has also become a high-profile political issue. Federal, provincial, and territorial finance ministers and first ministers have met several times and made statements about pension coverage and retirement income issues. Ontario has made promises to consult on important changes to the pension system. Several provinces have already released consultation papers, and the federal government has announced spring consultations and a review of policy options at the May 2010 finance ministers meeting.

OMERS wishes to be an active contributor to the national debate on pension reform to the government-sponsored pillar of the pension system. Our interest in addressing these retirement and security issues is as one of Canada's largest defined benefit plans, whose sponsors and members expect leadership from us on these policy considerations pertaining to pensions.

It is our position that pension reform should combine competitive choice for those without coverage and that changes to the system do not harm or undermine the current pension or retirement savings arrangements. We will continue to examine the current proposals for possible variations of the Canada Pension Plan and identify risks and benefits posed by each option.

This is an extremely useful and important public debate, and we applaud your committee's interest in addressing it.

Thank you. We welcome your questions and comments within our remaining time, in particular to our view of competitive choice available to all Canadians.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Brown.

We will now go to Ms. Thompson, please.

[Katherine Thompson, President, Air Canada Component of the Canadian Union of Public Employees]

Hello. My name is Katherine Thompson. I'm the president of the Air Canada Component of CUPE. I'm here with you today representing the 6,600 flight attendants who are employed by Air Canada.

Our members participate in a defined benefit pension plan sponsored by Air Canada. It is regarding the state of this plan that I'm speaking with you today.

Ours is not a profession that creates wealthy people. Our salaries are a reflection of our demographics. Given our limited ability to generate substantial savings during our careers, we rely on the security and stability of our pension plans to provide us with a dignified retirement.

Air Canada's pension plans cover over 30,000 employees and retirees. Had these pension plans been terminated and wound up as of January 1, 2009, employees and retirees would have received only 76% of their promised pensions.

While the plan's funding levels may have improved somewhat in the last year, the plans are still seriously underfunded, despite the sacrifices that Air Canada's employees have made to protect our pension plans. This places the plan participants--in our case, predominantly women and minorities--at an unacceptable risk and clearly demonstrates the inability of the current federal pension regulatory system to protect plan members.

Air Canada's pension experience should be a flashing warning sign for all of us. Air Canada's pension plans were threatened by the CCAA insolvency in 2003 and again during a second pension restructuring in 2009.

In the 2003 CCAA, the normal PBSA funding rules were set aside for Air Canada and replaced with a weaker set of funding requirements. In 2009 Air Canada was unable to meet even these diluted requirements and we faced another pension crisis and further pension restructuring.

As a result of that restructuring, Air Canada is only required to protect against further deterioration in the plan funding until 2014. There is no prospect that the Air Canada plans will make any progress towards full funding before then.

This is not acceptable for a private pension plan. The entire point of pension regulation is to ensure full pension protection regardless of the corporate sponsor's survival.

Current regulations have failed the employees of Air Canada, and the fulfillment of Air Canada's pension promise is now contingent on the survival of the company.

In retrospect, it's clear that Air Canada not only should have been allowed but required to fund a cushion, as is standard in some European jurisdictions, and that Air Canada should not have been permitted to take contribution holidays during the good times. PBSA reforms have started to move in this direction, but this is too little and, hopefully for Air Canada plan members, not too late.

The pension crisis that we've experienced at Air Canada presents learning opportunities for all of us. Our first lesson is that pension funding rules must be strictly applied and sufficiently rigorous as to protect pensions. They must be structured in a way that ensures pension plans are cushioned against inevitable financial fluctuations.

The only acceptable alternative to stricter funding regulations is, as the CLC suggests, a federally sponsored pension insurance program. Pension insurance, which already exists in the U.S., the U.K., and even closer to home in Ontario, would be funded through premiums paid by all plans and would ensure pension benefit protection in much the same way that other financial products, such as bank deposits and insurance annuities, are insured against corporate loss.

A second lesson is that the task of providing adequate pensions has become onerous, even for large corporations like Air Canada. The CPP component of retirement income must be improved and the private pension share reduced. The cost of CPP funding would be shared across the widest possible base, making for the most secure possible benefit, ensuring that a company's bankruptcy wouldn't completely decimate an employee's retirement planning.

In conclusion, we share the CLC's view that displacing a more significant share of our collective pension funding expense from workplace pension plans to the public sector will be good for Canadian corporate competitiveness and will result in more secure pensions for Canadians.

With these comments, I wish to close and thank the committee for its time and the invitation to address you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Thompson.

We'll now go to Mr. Raymond.

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

Thank you, Mr. Chairman.

Good afternoon. My name is Don Raymond. I'm the senior vice-president of public market investments for the Canada Pension Plan Investment Board.

It's nice to see you all again.

With me today is my colleague, Mr. Dale, senior vice-president of communications and stakeholder relations.

Thank you for inviting us to speak to you this afternoon.

During the mid-1990s the conversation in the Canadian pension industry and among policy makers focused on what was working and what was not. At that time it was recognized that the Canada Pension Plan was not sustainable. With foresight, political courage, and ingenuity, Canada's provincial and federal governments worked together and took bold action to successfully reform the CPP. With input from contributors and beneficiaries, pension experts, employers, the labour movement and academics, they crafted an enduring solution that ensures the sustainability of the Canada Pension Plan.

Fast forward to today. The CPP is sound and sustainable for the chief actuary's 75-year review period and beyond. It will be 10 years before the first dollar of investment income from the CPP fund will be needed to help pay benefits. CPP is viewed as a key part of the solution to increase retirement security and no longer as part of the problem.

It is reassuring that a recent Nanos poll indicates that a majority of Canadians are confident in the capacity of the CPP/QPP to deliver on their pension commitment going forward. What is a concern is that fewer than half of Canadians in the 30 to 39 age group were confident or somewhat confident on this point, whereas almost 70% of Canadians over 60 were much more confident. Asked whether CPP/QPP would have to reduce payments in the future, three-quarters of respondents in the 30 to 39 age bracket thought this was likely or somewhat likely, while only 42% of respondents 60 or over thought so.

Our take-away from this is that many Canadians are still unaware that the CPP was reformed almost 15 years ago and are not aware of the plan's soundness or sustainability for generations to come. Changing the perception of the CPP is a significant opportunity for policy makers.

Our role at the CPP Investment Board is to manage the CPP fund, but we believe that Canadians might make different financial choices if they better understood the sustainability of the CPP. One thing is clear: Canadians can rest assured that the CPP will be there for them in their retirement and will deliver an important portion of their retirement income as intended. As a result, the CPP can and should be viewed as the cornerstone of retirement security for the 17 million Canadians who currently participate in the plan.

Consider the attributes of the CPP. The CPP is a mandatory contribution-financed national defined benefit plan. These benefits are a stream of payments for life that are fully indexed and fully portable. Other advantages include the fact that risks are pooled among a large number of plan participants, the 17 million Canadians who are part of the CPP, and for the vast majority of Canadians, even if they have tax-assisted retirement savings, the CPP is the only access to an actual pension that they have.

The Canada Pension reform model of 1996-97 and the CPP Investment Board are admired by national pension plans and pension funds around the world as an effective way to address struggling national retirement systems. Credit for this accomplishment belongs to policy makers. It is truly remarkable that the CPP, rightly judged to be in crisis 15 years ago, is now seen as part of the solution, and enhancements to the plan are under consideration.

Here today we can share some of what we have learned from our experience of managing the CPP fund to help inform the debate currently under way across Canada and elsewhere in the world.

The CPP Investment Board manages the assets of the fund not needed to pay current benefits, assets which do not belong to the government and are segregated from general tax revenues. It operates at arm's length from government, free from political involvement, with a professional management organization accountable to a financially sophisticated board of directors. It has a singular commercial mandate to maximize investment returns without undue risk of loss, and it can invest with a high degree of certainty about the future cash inflows to the fund. Due to its partial funding structure, the fund has an effective amortization period of 75 years.

The CPP Investment Board is a longer-term investor than are almost all market participants. Our investment strategy is designed to perform over the long term to help sustain the CPP for 17 million Canadians over decades and generations. We manage the $124 billion fund with our investment horizon of five, ten, and twenty years, and it is designed to deliver returns over decades.

While we are encouraged by the stronger performance in 2009, it is performance over the long term that matters to the ongoing sustainability of the CPP. By staying the course with our long-term strategy, the CPP has benefited from the recent rebound in financial markets around the world.

In 2009 we were able to capitalize on our structural advantages and internal expertise to complete significant investments in Canada and globally. We expect that the investments we have been making during the past 12 months will be a strong source of investment income over the long term. We will maintain our strategic asset weighting of the portfolio and emphasize our strengths as a large long-term investor, to capitalize on investment opportunities we see in current market conditions.

In summary, we do not advocate any specific pension reform model, nor do we champion a specific proposal. Our role here in the pension system is to manage the funds that will help sustain the Canada Pension Plan as currently structured. Our sole focus is investing the assets of the CPP, and we have built an organization to handle the tremendous growth of the fund as it increases from $250 billion to $350 billion in the next decade.

If policy-makers decide to expand the CPP, we could, if asked, manage the additional assets. Alternatively, a separate organization that reflects the proven model of the CPPIB model could also handle this.

Thank you again for your invitation to participate today. We look forward to your questions.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Raymond.

We'll now go to the Canadian Bankers Association.

[Terry Campbell, Vice-President, Policy, Canadian Bankers Association]

Thank you and good afternoon. I would like to thank the chair and members of the committee for the opportunity to provide our perspectives on Canada’s retirement savings system.

With me today is my colleague Marion Wrobel, the CBA's director of market and regulatory developments. We also have for you an additional copy of a report we sent to you last November on this issue, which includes new research we have undertaken on the household savings of Canadians.

The CBA shares the concerns about the adequacy of Canadians' retirement savings. As providers of savings retirement vehicles, sponsors of defined benefit pension plans, and providers of advice to Canadians throughout their financial life cycles, our members have been actively exploring ways to strengthen Canada's retirement savings systems. We've put some of those ideas into the report that we've brought forward to you today.

I want to make four key points today.

First, as to how and why Canadian families save, there are many varied aspects, and these change over the course of a family's life cycle. When looking at this issue, there's sometimes a tendency to focus exclusively on pension or registered plan participation as the only measure of financial security, whereas there are in fact a range of ways that Canadians prepare for retirement. Our concern is that a one-size-fits-all approach may not be effective in addressing the actual savings needs of Canadians. In fact, it could have unintended consequences, for instance, by simply shifting existing savings from one pot to another without actually increasing savings, which has to be the goal.

Second, there are a number of concerns that we feel policy-makers would need to very carefully consider before embarking on any new public plan. For instance, some have suggested the creation of a new supplemental defined contribution plan. Some questions had occurred to us about that, which we think need to be addressed. For instance, how would Canadians get advice on the investment decisions they would have to make when contributing to a public supplemental plan? As we've just heard, Canadians have very clear expectations about the Canada Pension Plan. It's a defined benefit plan. It has known payouts at retirement. The issue is then who would address the expectations and potential confusion among Canadians regarding the unknown future payouts of a new government-created defined contribution plan? What would a new plan do to the incentives for private sector employers to establish or even retain their own pension plans for employees? It's questions like those that need to be very carefully considered as we all go through this process.

The third point I want to raise is that we believe the current retirement savings system in Canada is not broken. It's quite the opposite. It is a strong and functioning system, but it is in need of improvements. If our collective goal is to strengthen the financial security of Canadians, it may be more effective for governments in Canada to work together to improve the tax-assisted system that we already have, rather than creating a new public plan that would duplicate infrastructure already in place.

In our report, which we've provided to you, we make a number of recommendations that would make our already good retirement savings system even better. For example, in our view, the law should allow for pension plans that are de-linked from the employment relationship to allow for plans to be open to a wider range of membership. Such plans could offer small businesses effective alternatives to setting up their own plans and could also be available to self-employed individuals so that more people could participate in pension plans and save.

In addition, the rules regarding the tax-assisted private savings system should also be improved, for instance, by creating a lifetime ceiling on tax-free retirement savings instead of annual limits. By the way, in terms of the tax-assisted savings system, we need look no further than the tax-free savings account as an example of how a well-designed tax-assisted vehicle can be both popular and effective in helping Canadians save.

In terms of steps that we all still need to take, there's also the question of the need for enhanced financial literacy as it relates to savings and retirement planning. We certainly support the government's efforts through the financial literacy task force.

The fourth and final point I'd like to make is that the adequacy of retirement savings is a national issue and requires national public policy solutions. In financial policy matters generally and in retirement savings matters specifically, in our view, fragmentation across the country will ultimately hurt rather than help Canadians.

I look forward to your questions. Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Campbell.

We'll now go to Monsieur Laporte, s'il vous plaît.

[Jean-Pierre Laporte, Lawyer, As an Individual]

Good afternoon.

My name is Jean-Pierre Laporte. I'm a lawyer practising exclusively in the field of pensions and benefits in the city of Toronto. I have been actively involved in pension reform issues since 2003 and have published a number of articles in this area. Some of you may be familiar with one particular policy idea I first proposed in 2004 calling for the creation of a supplemental Canada pension plan. That solution was meant to deal with the issue of inadequate pension coverage in Canada in the private sector. I would be happy to discuss this concept during the question period.

The Standing Committee on the Status of Women has received my testimony as part of its study on women and pensions, and I would direct you to that comprehensive House of Commons study and its reports for additional background information.

My goal today, however, is to present this committee with some information on pension adequacy from an international perspective. While I realize that some of the speakers you have invited will present on this topic at later sessions, in my view the committee would benefit from beginning its study by looking at the international arena before becoming too bogged down in Canadian or provincial details. International comparisons provide a useful benchmark to gauge the performance of our own system, and they highlight design features that differentiate us from our peer nations.

I think it's fair to say that the fundamental question that most decision-makers should ask themselves is simple: do Canadians have enough to live on in old age? But who are we talking about? The self-employed individual, federal civil servants, farmers, homemakers, the recently arrived immigrant? Depending on the category one looks at, our fundamental question generates different answers, and yet there is still some merit in asking the global question: do Canadians as a whole have enough to retire on?

This brings me to very high-level international statistics that have been collected by the OECD and that I have distributed to the members of this committee. As you all know, the Organization for Economic Cooperation and Development tries to provide standardized statistical information to enable useful international comparisons. I'm no statistician and I cannot verify the accuracy of the data provided by this organization, but like most Canadians, I surmise that someone more qualified than me has taken the time to ensure that these statistics are of some utility and may be relied upon to some extent.

So what does the OECD tell us about Canada's ability to provide financial support for its senior citizens once they leave the workforce? The key statistic that I think is important and that I want to bring to your attention today is the net income replacement ratio provided by pension plans for someone earning the average industrial wage in their home country. That information is available on the OECD website, and I can provide that information to the clerk of the committee, but I think it's in the materials that I've provided.

By way of disclaimer, while the OECD data set in question has information about all the OECD members, I've only extracted data for the top 14 countries, with the highest net replacement ratios. This is 2006 data, the most recent data that I found available on the website.

When we look at the ranking, the Netherlands rank number one at 103% of pre-retirement income and Canada is ranked number 12 at 57.86%. There are a number of countries in between that have fairly high ratios: Denmark, 91%; Austria, 90%; Italy, 74%; and so forth.

This bird's eye view that looks at how much pre-retirement income is replaced by pension sources is interesting in many respects. First of all, it puts into perspective the claims some have made that our pension system is a world leader and there's no real need to reform anything. When all the rhetoric is said and done, the numbers don't lie.

Secondly, on an aggregate level it demonstrates that we have quite a bit of work to accomplish if we want as a nation to provide the kind of income replacement ratios that some smaller economies have already been able to achieve.

What the statistic doesn't tell us is whether Canadians are replacing enough income to live well into old age. Nor does it tell us who is covered and who isn't. Nor does it provide any detail as to whether the national pension system in the country is sustainable or affordable. What it does do, though, is provide a rough idea of how successful we have been as a nation in providing post-retirement income to those citizens of ours who earn the average industrial wage.

My own assessment is that while some of us have excellent pension plans and can look to the future with a lot of confidence, the millions of Canadians with no pension savings or inadequate financial resources are dragging our national average down, and that there is much work to be done.

Thank you for your invitation to Ottawa.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Our last presenter will be the Canadian Life and Health Insurance Association Incorporated.

[Dean Connor, Chief Operating Officer, Sun Life Financial, Canadian Life and Health Insurance Association Inc.]

Thank you, Mr. Chair.

My name is Dean Connor. I'm the chief operating officer of Sun Life Financial. It's my pleasure to be here today on behalf of the Canadian Life and Health Insurance Association, along with Frank Swedlove, the president of the association.

The Canadian life and health insurance industry commends the standing committee for its focus on retirement income security. We very much share your interest. This is an area that is highly meaningful to our customers, about 26 million Canadians who rely on us for financial security, whether it be through life and health insurance or lifetime income solutions that we offer through pensions, annuities, RRSPs, and RRIFs. Over two-thirds of Canada's pension plans are administered by the industry.

As an industry, we have been giving this a lot of thought, both in terms of serving our customers and staying abreast of their changing needs, but also in terms of the role that we play and the contribution that we make to the broader fabric of Canadian society.

Today, we would like to focus on the adequacy of retirement savings.

According to the 2009 Melbourne Mercer Global Pension Index, Canada's retirement savings system has only three peers: Australia's, the Netherlands', and Sweden's. This success has been predicated on the complementary relationship between government and private plans.

In this regard, we often talk about the three pillars of retirement savings. The government, of course, makes up the first two pillars, with old age security-GIS and the Canada and Quebec Pension Plans. It's our view that the role of the government in Canada's retirement savings system should be to ensure that all Canadians receive a level of income that meets their basic needs in retirement. We believe these first two pillars, the public part of our retirement savings system, are working well.

The third pillar is a combination of workplace pensions and other retirement plans, individual RRSPs, and individual savings. This third pillar is meant to provide a level of income adequacy that goes beyond the basics.

Structurally, we have a healthy third pillar: there is a wide range of products available, through a wide range of providers; it's a very competitive marketplace; there are strong tax incentives. But many Canadians are not sufficiently engaged, and some are not engaged at all. Sometimes this is by choice and sometimes it's through a lack of access.

When it comes to workplace retirement plans, there's a fair bit of inconsistency, which breaks down between the public and private sectors and between large and small employers. About eight million workers out of a total workforce of fourteen million have access to some kind of workplace pension plan. Five million are covered by defined benefit or DB plans. About 1.3 million Canadians are covered by workplace defined contribution plans, and two million are covered by workplace group RRSPs, which are less administratively complex than DC plans.

In the public sector, 90% of workers are covered by workplace retirement plans, and these are usually DB. When it comes to the private sector, however, only 50% of workers have access to some kind of workplace retirement plan.

In the private sector, there is a shift under way—and it's been going on for many years—from DB plans to DC plans or group RRSPs. This is in fact a global shift. It's driven by funding costs and by the risks and complexities of DB plans, which make them increasingly challenging for employers to sponsor.

The insurance industry believes there are reasonable steps that can go a long way to improving our retirement savings system. We join others first in believing that there should be a good look at the rules around RRSPs. We believe that expanding the definition of earned income to capture such things as royalties and active business income would be more inclusive of self-employed Canadians. In addition, extending the age at which Canadians must start withdrawing from their RRSPs and other pension vehicles from 71 to 73 years would allow those who are still working to continue to build up their retirement savings. Some countries have gone further. For example, in the U.K. pensions don't need to be started until age 75.

A second area that we believe could make a huge difference to Canadians is improving access to workplace pensions. The main impediments for employers right now are costs and administrative complexities. This is especially so for small employers.

We recommend that governments allow multi-employer pension plans that are set up as DC plans, or DC-MEPPs, whereby a regulated financial institution acts as the sponsor and administrator and any employer may join. It spares the employer almost all of the administrative costs and compliance burdens, except for payroll deductions. And because multiple employers could participate in the same plan, there would be significant economies of scale.

Employees would be automatically enrolled but would be permitted to opt out. As well, legislation should permit auto-escalation, whereby a plan could start members out at a base contribution rate, with an automatic increase in subsequent years until the desired target level of contribution was reached. Employers could match employee contributions or choose not to contribute.

For those employers who offer group RRSPs, the current impediment to maximizing retirement savings is that contributions to these plans are not locked in for retirement but can be withdrawn. We recommend employer contributions to group RRSPs be locked in to ensure they are meeting the objective of providing retirement income.

All these changes to private pensions: auto-enrolment, auto-escalation, multi-employer plans, and locking in employer contributions to group RRSPs are relatively simple and positive steps forward that would build up our third pillar of retirement savings in a way that few would oppose.

I'll wrap up with a few last comments. While the life and health insurance industry supports the public system for providing a basic level of pension, it does not support massive new government-run programs. Whether these programs are a DC top-up to the CPP/QPP or a whole new government-sponsored plan, in our view such plans would only replicate what is already done in the private sector.

In summary, in the view of the life and health insurance industry, we have a structure of saving for retirement that is sound and internationally recognized as such. What we need to do is find mechanisms to allow more Canadians to take advantage of what's already available. Our proposal is to free up the RRSP market and make workplace retirement plans more accessible to workers. We think this is the best way to achieve those objectives.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Mr. McCallum, for seven minutes.

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

Thank you, Mr. Chair. Thank you to all the witnesses.

First of all, we all like to think Canada is leading in everything, but we also should be realistic. I thought Mr. Laporte's analysis was interesting, that in terms of coverage ratios we're 12th in the OECD and in the middle of the G-7. That is nothing to be terribly boastful about--and I'm directing this to Ted Menzies. It does show there is more work to be done, which underlines the importance of these hearings.

My first question is to either Ian Dale or Donald Raymond. You say:

The Canada Pension reform model of 1996-97 and the CPP Investment Board are admired by national pension plans and pension funds around the world... Credit for this accomplishment belongs to policymakers.

Can you just remind us which policy-makers at the federal level you have in mind?

[Some hon. members]

Oh, oh!

[Ian Dale, Senior Vice-President, Communications and Stakeholder Relations, Canada Pension Plan Investment Board]

People might remember that a federal-provincial reform model took place in 1995, 1996, and 1997. It was a combination of 11 federal and provincial governments across the country of all political stripes.

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

All right. I guess we can read between the lines on our own.

Turning to a more serious issue, we in the Liberal Party have come out in favour of a supplementary Canada pension plan, and I notice that both the insurance companies and the banking association oppose that. We were driven to that partly because the management fees charged for the management of funds by the private sector are two or three percentage points per year, depending on the asset class, and are said to be among the highest in the OECD, whereas under a public pension system, like the Canada Pension Plan, the cost is a small fraction of that.

One of the drivers toward the supplementary Canada pension plan is the very high cost charged by the private sector. So when the private sector says don't worry, don't duplicate us, the point is that the vehicle we are proposing would be at a very much lower cost to Canadians than what the private sector is currently charging.

I'd like to ask both the bankers' association and the life insurers why we can't do both. We are proposing a supplementary Canada pension plan. You don't like that because it competes with yours. You are proposing, and both of you said something similar here, to “allow pension plans that are de-linked from the employment relationship, and allow for multi-sponsor or third party plans open to a wider range of membership”.

The bankers and the life insurers proposed that. I have nothing against that. Life insurers are already allowed to manage such pension plans under Ontario pension plan law. If there are impediments to those I think we should remove them.

My point is, why not let 1,000 flowers bloom? Why not allow consumers more choice? Have a supplementary Canada pension plan with which the private sector would have to compete and have multi-employer pension plans with which the public sector would have to compete. Why do you insist on cutting off additions to the public sector pension plan and having them exclusively private? Why can't we have a mix of both and give Canadians a broader range of choice?

[The Chair, Conservative, James Rajotte]

Mr. Campbell, do you want to start?

[Terry Campbell]

Sure. Let me just sort of clarify.

Our position on the idea of a supplementary plan I would characterize more as “Look before you leap”. Let's make sure, before anybody makes decisions to go down that road, that all the questions are answered. Now—

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

I have your questions, but I don't have much time, and I want to give Mr. Connor a chance, too.

[Terry Campbell]

No, no, I understand—

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

Why can't we have both options for Canadians?

[Terry Campbell]

One of the issues—and I'll turn to my friends in the life insurance industry—is this: we haven't seen the details of an actual worked-out plan. Our concern would be that if you put in place in effect what would be a new government plan that has automatic enrolment, what are the unintended consequences that would have for the incentives of private sector companies to say, “Well, why should we have to put in place anything for our employees, we'll just opt into that”? You then get towards a monopoly situation.

Now maybe there are ways that can be corrected. Our point is that you have in place now a well-functioning third pillar. That should be the first place you should look at it.

It's going to take probably a generation, Mr. McCallum, before we could see what the outcomes of a new government plan would be, good or bad, but we can make some fixes now.

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

Okay.

Based partly on Mr. Laporte's analysis, and other analyses I have read suggesting that the pension system is in need of repair on a fairly urgent basis, I don't think we really have a generation to wait.

But perhaps I can turn the same question over to Mr. Connor as to why, specifically, can we not have more choice for Canadian consumers by allowing both your preferred option, a multi-employer pension plan, and an expansion of the Canada Pension Plan, and the two can compete with each other and provide more choice to Canadians?

[The Chair, Conservative, James Rajotte]

You have about a minute, Mr. Connor.