Evidence of meeting #6 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cpp.
A recording is available from Parliament.
4:55 p.m.
Conservative
Ted Menzies Conservative Macleod, AB
Okay, thank you.
Very quickly, Mr. Farmer, you suggested that we didn't hit all the marks. I would argue we hit quite a few of them. If we had hit all of the marks, everybody would be angry, because we heard from the sponsors and we heard from the plan members. Frankly, what I think, and I've said this before, is that the security of a pension plan is directly contingent on the security of the sponsor.
Would you not agree?
4:55 p.m.
Vice-President, Bell Pensioners' Group
I do agree with that, but I think I have also mentioned to you in the past that the security of the pension plan should not and must not be dependent on the security of the sponsor. In other words, if the sponsor were to become unsecured and go into bankruptcy and cease to operate in one way or another, the pension plan better be big enough to cover all of its obligations.
4:55 p.m.
Conservative
Ted Menzies Conservative Macleod, AB
And that's why we put those changes in place that are in the Budget Implementation Act. They were tabled in the House yesterday.
4:55 p.m.
Vice-President, Bell Pensioners' Group
That's right, and if you would like to hit all the bullets, as far as I'm concerned I would love to test to see how many people would be happy and how many people would be angry—but I'd be very happy.
4:55 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Thank you, Chair. Thank you, witnesses.
I was just thinking of the huge irony of the assembled witnesses here. At one point, the stock valuation of Nortel was higher than Bell; Bell the parent, Nortel the child. In fact, I think you were higher than Royal Bank as well at one point. Nortel is obviously dead and gone. Bell has had its own struggles, but it seems to have survived quite well.
I wonder whether in fact we're just playing around the edges here. We're playing about super priorities, we're playing about bankruptcies, we're playing about surpluses and deficits and things of that nature, and yet a whole whack of these private pension plans are in real trouble. My vague recollection is something in the order of about 60% of the private pension plans kind of flip in and out of trouble.
I just wonder whether you need to be starting to look at a very serious solution of picking up the no-hopers and the faint-hopers and gathering them all together and trying to bring some rationality into the administration and investment decisions of these plans, and whether it's time to think in terms of something like a tarp, where the government just steps in—because one way or another the poor old taxpayer gets stiffed with the failure of these plans. So why not do a pre-emptive strike on some of these ones that are just pretty well never going to recover?
Since the philosophical divide here is between essentially Mr. Perkin and Ms. Eng, I'd be interested in giving Ms. Eng a first shot at that and let Mr. Perkin think about it, and we'll see whether there's some point at which the government should actually be giving some real thought to how to deal with these losers.
5 p.m.
Vice-President, Canadian Association of Retired Persons
Part of our recommendation is that the current regulatory regime needs to be fixed so that we don't get our companies' funds into the position that the Nortel pensioners find themselves in, to deal with contribution holidays, to deal with surplus, to deal with deficiency funding. That is something that's necessary.
If there is a universal pension plan, then companies that are in trouble might choose to find some safe harbour within the larger plan. That will be a help. If the pension benefits are detached from the whims and the choices of employers and what happens with their industry, for example, then you have a more stable fund, as the CPP did weather the economic storm better than, say, the auto industry.
Those are the opportunities that come out of a universal fund like this, and that's why it's important to have that kind of pre-emptive strike, if you want to call it, but pre-emptive opportunity for us to avoid the kinds of situations that we have. So it's two-pronged: on one hand, change the regulatory regime to ensure better funding, more stable funding of the ones that exist to the extent that they will continue to exist, but provide the option that there will be a safe harbour in a larger fund so that they never need to see themselves in this situation again.
5 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Mr. Perkin, how many of your 300-odd funds have had troubles?
5 p.m.
President, Association of Canadian Pension Management
Probably many of them. It's low interest rates. We all love low interest rates, but low interest rates, at the historical lows that they're at, are actually used for valuing the solvency basis of all these pension plans. That's why the federal government and many of the provincial governments had to make changes to grant temporary solvency relief to many plan sponsors over the last few years, because at the same time that the markets were tanking and the assets were going down in value, these historically low interest rates were being used to value the liabilities of the pension plan. When interest rates go down, the liabilities shoot up, so you get this increasing deficit.
What are some of the solutions? Obviously we'd all like to see the economy turn around and perhaps interest rates edge up somewhat. That'll actually provide some needed relief. But when you get into a situation where an employer becomes bankrupt, that's very problematic. We'd all like to see better funded pension plans, so that even if the company goes under, there's enough money in there to pay the promised pensions.
There has been talk of changes to the bankruptcy act. If you give pension plans a better creditor status in a bankruptcy, I'm not sure what that might do to the cost of borrowing and the cost of capital. There have been some innovative suggestions made by some of the provincial reports, in particular the Ontario Expert Commission report, chaired by Harry Arthurs, suggesting that maybe an Ontario pension agency could take over the assets of an insolvent employer and manage them through to hopefully paying out more than what they might if the plan is immediately terminated.
5 p.m.
Liberal
5 p.m.
President, Association of Canadian Pension Management
No, I think there are some real structural changes here that need to be made, but part of it is the economic--
5 p.m.
Liberal
5 p.m.
Conservative
The Chair Conservative James Rajotte
There is another Liberal spot, though.
Mr. Généreux, s'il vous plaît.
5 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Thank you, Mr. Chairman. I will share my time with Mr. Hiebert.
Thank you to all the witnesses for being here, especially Mr. Sproule, given everything you are going through and the decisions you have to make. My first question is for Mr. Perkin.
Given the current financial situation of governments, both in Canada and in Quebec, my home province, how would a universal plan affect their financial situations? My question is also for Ms. Eng. A financial impact would be inevitable, since governments would be the ones to implement this type of public plan. So, in your view, what would the repercussions of such a decision be?
5:05 p.m.
President, Association of Canadian Pension Management
As I mentioned earlier, we already have a public pension program in Canada and it's known as the CPP and the QPP. That's doing what it was intended to do, which is to provide a basic level of retirement income to Canadians. On top of that, we have the other government support programs like OAS and GIS, topped up in some cases by some of the provinces.
If you're talking about the cost of setting up a supplemental CPP, I honestly don't know. What I can tell you is that there are other third pillar retirement income providers out there today that are providing pension plans on a group basis for less than 1%. It's somewhere between half a percent and three-quarters of a percent. So a lot of the concern we hear in media stories and otherwise about Canadians having to pay 2%, 2.5% is in the retail sector for people with RRSPs who invest through mutual funds. Those aren't people who have pension plans through their employer on a group basis. So what we are encouraging the government to do--both at the federal and the provincial levels--is to take steps so that we can have more group arrangements for people who currently cannot contribute, such as the self-employed.
The self-employed cannot participate in any group pension plan today because they don't have an employer-employee relationship. They are forced to save through RRSPs. So if they have a really good year they are capped on how much they can save; if they have a really bad year, that will limit how much they can save. They can carry forward anything they don't put into it, but it doesn't recognize that, over the lifetime of that self-employed individual, there are ups and downs in terms of the income level.
One of the things we talked about publicly is perhaps a lifetime contribution limit for RRSPs so that there is a little more parity between the person who is forced to save through an RRSP and the person who enjoys the benefits of a pension plan at work. But we'd actually like to see more Canadians in pension plans. For the self-employed, those in small business--even where their employer chooses not to set up a plan because of the cost and complexity--we'd like to see those people in a pension plan. For that to happen we need changes to the tax act. We need changes to the provincial pension standards as well.
5:05 p.m.
Conservative
5:05 p.m.
Vice-President, Canadian Association of Retired Persons
Thank you for the question.
The fiscal impact of a major uptake in people saving for their own retirement--if they were to do it in a massive amount--would be a loss in tax revenues. If we propose that you double or triple the CPP or everybody takes up all the available RRSP room, or they join a UPP and in each case get the current state of tax deduction for making that contribution, then obviously there will be a major impact on tax revenues.
What should the government do when it is faced with a huge uptake in contributions in the short term with the attendant tax revenue laws? They need to think further along to realize that without this kind of investment today they will be paying it out--if they have a mind to do so--through increases in GIS costs down the road. They are going to be making up those differences for people who find themselves on hard times, similar to the impact on health costs because of people's financial insecurity. Those things are all net costs in the longer term. So there is going to be a fiscal impact if Canadians take up the opportunity to save for their own retirement using tax-deferred vehicles. Any one of the above will have the same impact.
5:05 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
You've got 10 seconds, so I'll add that to the next round.
Mr. McKay again, please.
5:05 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
So I get five minutes and 10 seconds now?
I just wanted to go back to this conversation a bit and press some of it.
Ms. Eng, if you divide it into winners and losers, your essential argument is, on the winners going forward.... If you keep the winners in place and tighten up the rules, tighten up the surplus and deficits, tighten up the bankruptcy stuff, tighten up the holiday contributions, and probably some rules about self-investment and things of that nature, the theory is that in capitalism, there are winners and losers. In this particular sector, there doesn't seem to be any consequence for losers, other than the poor schlep at the end of the thing who ends up with nothing. But there's no consequence for the plan itself or the administrators of the plan.
Mr. Perkin threw out a kind of idea with respect to the Ontario government picking up some of these loser plans. What's your reaction to that?
5:10 p.m.
Vice-President, Canadian Association of Retired Persons
I guess I want to jump ahead and hope there aren't any losers, so--
5:10 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
There are already a bunch. He's already representing a whole bunch of losers.
5:10 p.m.
Voices
Oh, oh!
5:10 p.m.
Vice-President, Canadian Association of Retired Persons
I represent winners. These are people who have done, I hope, a decent job in their lives and they want to make sure they give the benefit of their advice to future generations, with the hope that we are all winners when we come out of this.
The hope is that if you reinforce the rules that govern existing plans now to ensure against the instability that the current rules permit, then we will all look to a better future. That is the hope. For the people already facing difficulty, obviously they're hoping the market will recover. If they never do, there's an opportunity for safe-haven options that allow them to weather the storm so they won't get worse than they are right now. That's the best you can do for them right now, and take a lesson from the experience to change the rules.
For people who don't even have pensions to worry about, we're offering them the opportunity to save for their own retirement in circumstances where we hope they won't face those challenges because of the way it's constructed.