Finance Committee on March 30th, 2010

[The Chair, Conservative, James Rajotte]

Mr. Marston, please.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you, Mr. Chair.

I want to say to Mr. Farmer that I'm a former Bell Canada employee who is not collecting a pension—just to put that on the record.

It struck me as interesting, because when I look across the table—and perhaps I'll leave Mr. Sproule out of this—this is a group of people who are representing people in general who are somewhat more affluent.

Yesterday the National Pensioners and Senior Citizens Federation met with some of the NDP caucus members, and we talked about the fact that 63% of working Canadians have no pension and have no savings at this point in time.

So I understand, Mr. Perkin, when you talk about the flexibilities and all those things, but most of these people are in a position where perhaps some discipline might be in order to help them.

Talking about the public side of the stool, you've heard from the Liberal Party when they talk about their supplementary plan. The NDP's proposition is very similar to some others: we propose a doubling of CPP. Again, as Mr. Wallace has pointed out, that will take a long time. We're suggesting that 2.5% of the employer side and 2.5% from the employee side would make that happen.

The major thing is the fact that, if it's not mandatory, we're not going to reach the end goal of protecting those lower-income Canadians who have nothing at this point.

The other thing we see as value to what we're talking about is that you have in the CPP plan an administration that has been, to all intents and purposes, fairly successful over the years and has built up the assets. If we incorporated those premiums directly into the core assets of CPP and managed by them in that form, you would not have the added administration that the Liberals are proposing here.

Being mandatory, I think, is to the benefit of the workers. They're going to have at least that founding stool. If they do find themselves later in life with the extra assets to carry forward to invest elsewhere, God bless them; more power to them.

I would like Mr. Perkin and Ms. Eng to respond to the thoughts on the mandatory versus the voluntary.

[Scott Perkin]

Let's talk about expanding the existing CPP as we know it. We have no concerns about the fact that the CPP, over 12 years ago, was put on a solid foundation, actuarially. We're now paying close to 10%, between Canadians and their employers, into that plan. The chief actuary has indicated that on an actuarial basis, it's pretty sound for the next 70 to 75 years.

We have many concerns about expanding it. One is that it represents a further payroll tax at a time when we don't believe Canadians and their employers need more tax. We're coming out of a difficult economic situation here in Canada, as well as around the world. It also represents inflexible benefits and contributions: if it's the same for one individual, it's the same for all individuals. Canadians, we believe, save in different ways towards retirement and at different times in their lifetimes.

We're also concerned about the cost, because we think that any meaningful increase in the CPP would have huge costs attached to it. Finally, we're concerned about the lack of diversification of retirement savings. We've always learned not to put all our eggs in one basket.

Those are some of our concerns about the existing CPP.

In terms of a voluntary arrangement, there was some talk earlier about auto-enrollment. We've seen elsewhere in the world that, actually, automatic enrollment of employees in a voluntary arrangement, with the right to opt out, can actually increase the coverage level. Most people, given the choice, might not necessarily elect to participate. However, if you put people in and give them the right to get out if they really want out, most won't get out. That's what we've seen elsewhere in the world.

Even the feature of auto-escalation of contributions--once you get them, let's automatically increase their contributions on a regular basis, unless they choose not to do that--is another way of perhaps getting Canadians to save.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

I just have a comment. The percentage that CPP's costs would increase for these deferred wages would be about the same amount of money they would pay for administration fees in private sector funds later on. So what we're actually saying is that we take those fees, we put them into the core base assets, and we build those for folks there.

Go ahead, Ms. Eng.

[Susan Eng]

Thank you.

We've been asked about the issue of mandatory and voluntary quite a bit, and I'm not sure why it is that people are so frightened of the idea of it being mandatory. In fact, mandatory works.

Obviously, our model focuses on a big-picture framework that says that if you want to get to your target quickly, and you can guarantee that everybody participates, mandatory works.

I understand that people are pedalling backwards furiously from that, because they feel that somehow this would be one more imposition from government that people just don't like to hear about. I understand that. But the reality is that every defined benefit plan we currently have is in fact mandatory. Your own pensions are mandatory. We now have mandatory seat belt laws. We now have mandatory no smoking laws and bike helmet laws, and I can go on and on.

The reality is that people will always reject any kind of state nannyism. But if it's for their own good, I suppose you have to gather the political gumption and say, well, this is for the public good over the longer term.

If you want to do it without making it mandatory, there are ways. You can make it mandatory with one opt-out and hope for inertia. In fact, that proves my point. People have the inertia of not doing things for themselves voluntarily. So if you reverse it, and make it a negative option, that works better in the long run, and later they thank you for it. Fine. If that's the way you want to make the political choices, that's all right. But our recommendation is focused on getting universal access, affordable access, and the kinds of economies of scale and investment fees and so on that come with a larger plan. To be clear, we're not necessarily basing this on simply an expansion of the CPP; we are using the CPP as a good model to frame our thinking.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go to Mr. Pacetti, please.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman. Thank you to the witnesses for coming forward.

Mr. Sproule, just quickly, you mentioned that you're waiting for a decision from the Ontario court, but you're still hoping that there will be a change at the federal level.

[Donald Sproule]

Yes, that's correct. Basically, we took out clause H2, which was our ability to argue that if there are bankruptcy law changes.... That will be in front of the court tomorrow, and we hope to have an agreement.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's in front of the Ontario court.

[Donald Sproule]

It is in front of the Ontario court tomorrow. So that's said and done.

Looking to the future and what faint hope we have, it would be for federal bankruptcy law changes that would be retroactive.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Would that help Nortel, because would that not be under Ontario legislation?

[Donald Sproule]

No. The bankruptcy laws are under federal jurisdiction, and that would help the Nortel pensioners.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

You're saying that once Nortel claims bankruptcy in the month of September....

[Donald Sproule]

Yes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay, great.

I have maybe a quick question for Mr. Farmer. In terms of the pension shortfalls, why do we not seem to have a problem on the public side? I guess the CPP is the only example. I think Mr. Perkin just mentioned that it has a 75-year track record. Meanwhile, we have private pension plans that seem to be in chronic deficit positions. Are they not making weekly contributions to them? Why do they fall behind? It can't be just actuarial evaluations.

[Robert Farmer]

It isn't just that, although that does play a role. There's more than one reason. Currently, and it will change under these new proposed rules, pension plan sponsors are required to evaluate their plans only every three years if they're already fully funded. They don't have to do another evaluation and change the contributions they make to their plans for three years. Over a three-year period, lots can happen. That will now change. It will go to an annual evaluation, so that helps. But in the past, if in that three-year period the market took a downturn and the investments just didn't turn out, you could go from a surplus position to a deficit position quite easily.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Would the contributions be made, at least?

[Robert Farmer]

The contributions would be made according to the previous evaluation, which could be two or three years old. So they would say, well, it looks like you only have to contribute whatever, say $10 million, but because the market is underperforming at the time, maybe they really should have been paying $20 million or $30 million. They were playing by the rules. You couldn't accuse them of skirting anything. But the rules allowed that to happen.

The other thing is that the sponsor's requirement has been and will continue to be that they have to fund it just enough to cover 100% of the liabilities and no more. Again, that goes on for quite some period of time. The market takes a downturn. Last year, most plans dropped by 15%, 19%, or 20%. That's what happens.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

Just to follow up on Mr. Marston's question, Ms. Eng, it's difficult to say voluntary, because I think we already have a voluntary system. Anybody who has some money can put it into an RRSP, and the people who are not putting money into their RRSPs are the people who are having problems. Some of them may be having financial problems, but some of them just don't want to save for retirement because they say the government will take good care of them. There could be different reasons. So how does it become mandatory?

You're also saying to use the opt-in option. But the company or the employer has to absorb some of the cost involved. Whether it's 1% or 2.5%, as we've been talking about today, not all employers want to absorb that. You can't just have an opt-in by one party. There also has to be opt-in by the employers.

[Susan Eng]

This is why we recommend a universal fund that is not tied to the decisions of one employer or even to any group of employers. It needs to be something that is widely available, with no advantage or disadvantage for one employer over another if they opt in or out of the plan. When it's universal, the set-up costs may require government involvement. But once it is set up, this entire fund would be funded by employer and employee contributions.

In terms of the details of how that happens, that's something that belongs to the pension summit, where we can iron out how that could come into play.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I just want to ask Mr. Bellemare....

Mr. Bellemare, you represent a union. Do you agree with a universal pension plan?

[Réjean Bellemare]

That is clearly what we have been asking for, as well. We would like to see contributions to the Quebec Pension Plan and the Canada Pension Plan at least doubled.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But what about employers, who would have to absorb part of the cost?

[Réjean Bellemare]

We believe that, in the long term, it would cost less than contributing to private plans. Employers are often forced, by way of negotiation, to set up private plans which cost them more, which do not cover their employees very well, and which do not cover all citizens. I think this is an issue which concerns society as a whole. This is something which society should pay for.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Perfect, thank you, Mr. Chairman.