Finance Committee on March 30th, 2010

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

Let me turn it over to Mr. Perkin. We talk about a safe haven here, but I don't know what a safe haven is when, even with market recovery, you're still down 15% or 20% on your portfolio. Even with interest rates taking off--which I don't really anticipate, but they will go higher--you're still going to be representing a significant percentage of folks who are just never going to get what they're entitled to under their pension plan. So what's the safe haven?

[Scott Perkin]

I'd like to think that people will get their promised benefits, and we need to probably find ways to fix the system so we incent better funding. Mr. Pacetti asked earlier why public plans aren't having trouble like the private plans are. Part of the reason is that public plans are typically indexed. In Ontario, for example, when it comes to valuing the plan on a solvency basis, you don't have to include the indexing. You're already funding for it, but you don't have to include it in your valuation.

Private plans, on the other hand, don't have that indexing buffer, if you will. So many of them are in the difficulty they are in because of low interest rates, the asset values having--

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

Isn't that just stupid management?

[Scott Perkin]

No, I don't think it's stupid management at all. I think there are some problems with the system of funding defined benefit plans.

But let me throw out another idea. There was a lot of talk in both the Ontario and the Alberta-B.C. provincial expert reports on the notion of something called a target benefit plan. That may be the way of the future. A target benefit plan is simply a benefit that you're targeting for in retirement. As a Canadian who's contributing to that plan, you have to constantly assess where you're at and either adjust your expectations of what you're going to have in retirement or adjust your contributions accordingly so that you're constantly being forced to test where your benefits are. So it's kind of like a hybrid between a defined benefit--

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

How would we do that in the context of a pooled plan, though? Five years from now I want to have $70,000 in my retirement on an annual basis. I don't understand how it would adjust from $70,000 to $80,000 or back to $50,000 on an individual basis if I'm in a pool and the pool is not being well-managed.

[Scott Perkin]

It would operate very much like a defined-contribution plan operates today, whereby you have your own account. So you're pooling the assets for investment purposes, but not for other purposes, such as pooling risks of longevity and that sort of thing.

It may be a way to engage Canadians better in terms of saving towards retirement and keeping an eye on what they have, how much they need, and what they're expecting to retire with.

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

You're changing the onus, though.

[Scott Perkin]

You're changing the onus to the Canadian who's investing in their retirement. They should be creating some wealth towards their retirement, and you're forcing them to keep their eye on the ball, if you will, rather than simply putting money into a pension plan, perhaps not looking at their annual statements, perhaps not really knowing where their account is at.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

We'll go to Mr. Hiebert, please.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

Just to follow up on that line of questioning, Mr. Perkin, would that target benefit plan that's proposed in this Alberta-B.C. report require an employer contribution? Is there an employer obligation in there? Or is that not part of it?

[Scott Perkin]

It could, but it doesn't have to. Most defined contribution plans that employers provide today would have an employer component, but part of the thinking behind expanding coverage is that for small business owners, for example, who simply can't afford to provide a pension plan or don't want the costs and complexity of providing a pension plan, why not let their employees contribute to a pension plan in any event?

It doesn't have to be sponsored by that employer. It could be a multi-employer plan, which we've heard some talk of today. Current tax rules don't permit that, though.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Before I get too far down the path of questions, in your presentation that was distributed to members you had a list of key specific changes. I was just wondering, instead of taking the limited time we have right now, if you could provide an explanation to the members by submitting it to the chair, just unpacking what your specific changes would accomplish and why. I could take a lot of time doing that right now, but I think it's time better spent using it for questions.

In addition, on page 9 of your report, under the category of “Myth Busting”, you make the statement that current pension rules discourage workplace plans and frustrate existing employer-employee pension plans. How so? What current rules are the cause of the frustration?

[Scott Perkin]

One of the big issues is funding of defined benefit plans where the employer has all the downside risk and doesn't necessarily share in any of the upside gain.

So there are recommendations out there to try to incent better funding of pension plans. Today employers put in what they're required to by law, but our sense is that that's all they do. They don't put in the extra money that I think one of the members of this committee suggested they might put in simply because, in their view, in the world of pensions as we know it for the last 20 years in Canada, if there's extra money in there, it may be gone.

There may be better ways to incent better funding. Certainly we've proposed things like letters of credit to help where there's a deficiency, and if ultimately that deficiency disappears because interest rates go back up or the market value of assets improves, then that letter of credit effectively disappears. The employer hasn't had to devote extra money to the pension plan at a time when it may need to devote those extra funds towards its business.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I have one last question, if I have a little bit of time.

[The Chair, Conservative, James Rajotte]

You have two minutes.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

A little bit earlier in your testimony you made the statement that everyone would be better off if they were in a pension plan like the one that is administered or supported by your organization.

I thought I heard you suggest that it would be a better option because of the lower management expense ratio, or something like that, a lower cost of administering such a pension. Could you elaborate on that?

[Scott Perkin]

First of all, we don't provide pension plans. There may be some bodies out there, like the Canadian Federation of Independent Business, for example, who might like to provide a pension plan for their members. But again, under current tax and provincial pension rules, they cannot.

Again, we think there's a need to change some of those rules to open up coverage opportunities to more people. We think, as the Baldwin report that was provided to the federal, provincial, and territorial ministers back in Whitehorse suggests, there's a significant minority of Canadians who aren't saving enough towards retirement. Our sense is that those are the self-employed and people employed in small business, primarily. That's not to say there aren't others, but we think that's where the focus should be. Again, we think that by changing some of the tax and provincial pension rules we could actually open up coverage opportunities that do not exist today.

To Ms. Eng's earlier comment that the private sector has failed us, the private sector hasn't had an opportunity to provide coverage to those people. The private sector and other retirement income providers are providing group pension plans today to people at a cost of half to three quarters of a percent.

[The Chair, Conservative, James Rajotte]

Be very brief.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

The last question is for Ms. Eng. You support a proposed mandatory program for all Canadians, but how do you respond to Canadians who say they have their own method of saving for retirement, which may not include contributions of the type you're suggesting? They might be investing their excess income in a business or housing, or other avenues.

[Susan Eng]

There is that opportunity. In fact, one of the research reports that was looked at in the meeting at Whitehorse suggested that a major investment in a home should be sufficient, with the idea, I guess, that you can downsize and sell your house. It's an opportunity, but not everybody is able to do that, as they often need to live in that home and can't really sell it off.

The research has indicated that people have to be able to turn their assets into money they can actually use. If they can make huge investments and not have to worry about this, they are usually at the higher income levels. The recommendations we make are for middle- and upper-income people, or those with salaries up to about $122,000 at this point.

For the people who are very well off, maybe they will never need this kind of thing, so we are focusing on the middle class.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go to Mr. Marston, please.

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

Thank you, Mr. Chair. I want to point out to Mr. Menzies that over his shoulder is Stanley Knowles, the man who suggested CPP in the first place.

[Ted Menzies, Conservative, Macleod, AB]

You scared me.

[Voices]

Oh, oh!

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

I think it's appropriate that we're in the NDP caucus room for this study.

The other thing you raised was my bill in the House, Bill C-476, which has just been changed. We had the member for Thunder Bay—Rainy River table Bill C-501, or essentially the same bill, to address the Nortel situation. It should come up this session, because of the order of precedence, and we'll be quite happy with that.

My Liberal colleague talked about safe havens and portfolios, but I still want to come back for a moment to those people who are living on OAS and GIS only. There are people in this country living on $1,162 a month. There are about 260,000, according to Stats Canada, who live below the poverty line. So as this committee moves forward and talks about disposable income and other things, let's always keep in mind that something has to be done on that front as well.

The doubling of CPP we talked about was based on 50% of income, not the total. There's still plenty of room for what you're talking about. We'd be thrilled to death if there was an incentive of some sort to help people start their own pension plans on top of that solid foundation.

How much time do I have, Mr. Chair? A couple of minutes?