Finance Committee on March 23rd, 2010

[John McKay, Liberal, Scarborough—Guildwood, ON]

But if the rules are clear going in that this is a defined contribution plan, it's managed as a pooled plan much like the Canada Pension Plan is managed now, that there are no requests for advice, or they're not set up to give advice... I'm hard pressed to see where the problem is.

[Marion Wrobel]

Well, the problem is that many of the proponents of these supplemental plans also are advocating for automatic enrollment. So individuals are going to find themselves...they're not making the decision to invest and to belong to these pension plans. Someone is making that decision for them. They are bearing all the risk. They may not understand what it is, and that's why they need advice.

[Terry Campbell]

If I could just add to what Mr. Wrobel has said, in a defined Canada plan, as you know, whether or not your returns are adequate for the payout at the time, there is that defined payout that you know you're going to get.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I understand that.

What currently exists is a defined benefit plan, no ifs, ands, or buts about it. Your contribution to that defined benefit plan is the contribution. Why couldn't a defined contribution plan have similarly...this is a defined contribution plan, you contribute your money, and however it turns out is however it turns out?

[Terry Campbell]

Well, that's it, however it turns out.

One of the problems is that it comes down to the expectation of Canadians. If governments put in place a defined contribution plan, my sense is a lot of Canadians are going to say, “Thank goodness, the government is taking care of it, it's all done, and I'll have a set payout.” Then at the time when they come to collect on the retirement they say, “This isn't anywhere near what I thought it was. Why didn't somebody tell me?” This is the Canada Pension Plan.

That's the issue here, I think.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

Monsieur Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

My question is for Ms. Thompson, given that much of the reason for the issue we are discussing is the uncertainty that people have regarding the value of their pension plans. The people from the Air Canada Component of the Canadian Union of Public Employees are dealing with that uncertainty. In their presentation, I see they recommended pension insurance.

You say that such a program already exists in the U.S., the U.K. and Ontario. The other speakers did not raise the possibility of creating a pension insurance program.

I would be interested, indirectly, in hearing Mr. Connor's response to that, as someone who represents insurance companies, as well as his opinion on the possibility of creating a program to insure the value of pension plans.

[Dean Connor]

The insurance safety nets that are referred to in Ontario, in the United States, and in other places have been put in with the very best intentions. In practice, it's been a very big challenge to make them work successfully. For example, every time a large employer is on the brink of bankruptcy and it threatens to wipe out the pension guarantee fund, you've seen that governments--the Province of Ontario, the Government of the United States--have to step in and take other measures, because the collapse of a large plan would completely wipe out the relatively small safety net fund that has been established.

I would say the actual experience with these safety net funds has been challenging. For them to work properly would require very high tolls paid by the other pension sponsors, higher than what anybody has been willing to charge today. That's the nub of the issue.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I find that a bit unfortunate because it reflects a belief that the private sector is more effective and efficient than the government in terms of administration and business. We are coming to the conclusion that private plans are ultimately no more secure.

Ms. Thompson, earlier, in response to my colleague's question, you said that your feeling of uncertainty and the drop in the plan's value are not unique to Air Canada—because people could think that any financial problems are due to the Air Canada Public Participation Act. You answered that it was not due solely to that legislation, and that it is happening in other companies as well, such as Nortel, which is another case.

Finally, that is why you think that the value of public pension plans needs to be increased in order to give workers more guarantees. Is that correct? Because the insurance program you are recommending is not necessarily a sure thing. And you say that we should increase the size of public plans. So that is a policy you would like to see?

[Katherine Thompson]

Absolutely. And again I apologize that I can't respond to you in French.

We believe that sharing the pension responsibility over as large a base as possible offers the most security for our members. So that's why we support that initiative. Our members can't be entirely reliant on corporate goodwill or sense of responsibility any more.

Unfortunately, the markets have been very harsh on pension plans. Even with a company the size of Air Canada, because of the dips in the pension fund, there's no way it can be funded by the corporation itself. So that's where we believe pension insurance would be a viable option, and we're happy to provide the committee with further information on that.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you. That is fine.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Carrier.

Madam Block, please.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

Thank you for being here with us today.

My questions are for the Canadian Bankers Association. I know that you're way down at the end of my side of the table, so I may not be able to make eye contact with you the whole time.

I appreciated reading your report, “Modernizing Canada's Retirement Savings System” and the complexities you identified through this study on pension reform. I also appreciated that you submitted it to the committee so we can continue to study it.

Reading from that report, you note that there are no simple one-size-fits-all solutions, and I appreciated that you reiterated that comment today.

On page 7 of your report you also stressed the need for coordinated action by governments across Canada. You also said:

The adequacy of retirement savings is a national issue, and requires national public policy solutions that will enhance the ability of individual Canadians to save.

Is it still your view that any changes should be coordinated with cooperation among all levels of government? Can you expand on what some of those changes might be?

[Terry Campbell]

We're very supportive of the discussions that have been going on at the federal and provincial levels, because the great danger, as I was saying earlier this afternoon, is that you will have a fragmented approach. Because we are one country and the retirement savings needs don't vary materially from coast to coast, we would worry about plans that might be developed that would have mobility concerns. We're a very mobile population, and people move from province to province. They expect to have portability of their pensions.

On one of the biggest issues I want to flag, in answer to your question, a lot of commentary is being made that defined benefit plans, while being a sort of very good gold standard, are in decline. There's a tendency to say that's kind of irreversible and that's too bad. We think this is a very good kind of pension plan, and it is hampered by the fact that there is a lack of harmony among the provinces and jurisdictions across this country.

As we say in our report on page 7, as you note, one of the things that would reduce costs, particularly for employers that have operations across provincial borders, is having pension rules in jurisdictions across the country more harmonized and in line. It would take a lot of the administrative costs away. So If I had one solution on that particular side, that's what I would offer.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you.

I'd also like to talk about the TFSA.

Again reading from your report you state:

The take-up rate for the TFSA has to date been quite strong when compared to the more well-established RRSP. It has the potential to represent a significant addition to the basket of tax-assisted savings vehicles.

You go on to say:

Before pursuing other reforms, it would be worthwhile to determine: (1) if the TFSA represents an addition to the RRSP or a substitute, (2) whether it increases net savings or merely replaces one form with another, and (3) whether it proves to be particularly attractive to certain family types for whom inadequate savings is a concern.

Would you be able to share with us some of the potential that you see for the TFSA as an increasingly important part of the retirement adequacy system for Canadians?

[The Chair, Conservative, James Rajotte]

There's about one minute there, Mr. Campbell.

[Terry Campbell]

I'm going to turn to my colleague Marion Wrobel who has looked at this issue.

[Marion Wrobel]

We do think that was a good reform. It's a reform because it provides tax-assisted savings vehicles for a variety of reasons. We have an RRSP that was originally a retirement savings plan and we've made a number of modifications to it to enable people to save for a down payment for a house and all of these things.

The TFSA, by its nature, is very flexible. It's very good for lower-income families that don't have the high marginal tax rate and may find if they save in an RRSP that it's going to be taxable income when they draw it down and it's going to be clawed back.

We also like the TFSA in regard to the fact that if you take money out for a particular reason, you regain that tax room. It's a very flexible, very profound, and large reform to the tax-assisted savings vehicles. Let's see how it works out. Maybe future reforms should be directed at the TFSA.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. McCallum again, please.

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

Thank you, Mr. Chair.

I just want to clarify one thing with the CPPIB. I think Mr. Wallace was asking if you were currently set up to do something new. I assume that the answer is no, but in your statement you say, “If policy makers decide to expand the CPP, we could if asked, manage the additional assets”.

To me, that's the operative point. Would you agree with that?

[Donald Raymond]

As I explained in my earlier answer, if it's expanding the CPP roughly in its current form so the YMPE or the replacement rate... That's more or less similar to what we're doing. We're set up to do that and we would accelerate our plans to handle larger asset pools. The question, I think, was in relation to a defined contribution plan, which we are not set up to do currently.

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

But you could set yourself up to do that if asked?

[Donald Raymond]

Yes, exactly. That's the essence of the questions that we will respond to the committee with.

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

Thank you. That's what I wanted to know.

On the question of the advice people need in order to do a defined contribution, I don't really understand that, because there are already in existence defined contribution plans that don't require specific advice. There are so-called life cycle funds that are handled by banks. Is that not the case? Individuals don't have to seek advice if they purchase a life cycle fund.

[Terry Campbell]

There are funds like that, but I would say that the characteristic of a defined contribution, particularly over the long term, is that an individual's risk profile and needs are going to change and they are going to want to be able to... This is a characteristic of most funds, or, I should say, of most of the defined contribution plans. They will want to be able to satisfy themselves that if they're at the age of 30, they're in the right spot, but if they're at the age of 58--