Thank you very much for the opportunity to be here today to speak with you.
In the pension area, small and medium-sized firms certainly have a number of interesting challenges, some of which have been alluded to a little bit by the earlier presenters. Because we don't know yet which way our discussions are going to head, I thought I'd open with some principles that are important to the small and medium-sized business community, which is equal to about just under half of our economy in Canada. This is obviously a very important group for the economy generally and for employment in general, because typically small businesses punch above their weight in terms of job creation.
As an example, you might be interested to know that during the last recession aggregate employment in the small and medium-sized business community stayed constant. It did not fall collectively, as some firms were down and some were up. They added a very welcome degree of stability during that time. They are obviously an important constituency. Naturally I'm biased, but I do think it's important overall.
Some of the principles.... A number of options have been put out on the table so far, such as doubling CPP premiums—in other words, doubling a mandatory payroll tax. We feel some type of voluntary option or options obviously would be much more welcome. We already have a high payroll tax burden in Canada that does fall disproportionately heavily on the smaller firm. And of course it really is a tax on jobs. That is something we would be very strenuously opposed to.
Think of the self-employed. The self-employed person pays both the employer and the employee proportion of CPP. You'd be asking them to pay 20%. That's pretty rich. Just using that example shows you that's not a particularly functional solution.
Something that was proposed by the Canadian Life and Health Insurance Association was perhaps to require firms with 20 employees and up to set up a plan. Again, we don't know details about that, but that type of mandatory approach we would oppose as well.
However, we do feel more flexibility could be introduced into the system to permit small and medium-sized firms to offer plans at a lower management cost than currently exists. Right now, the most accessible tool for a small firm is a group RRSP. As we know, management fees on those tend to be significant, so that's not the most efficient way of operating there.
But there definitely are ways--such as multi-employer pension plans—of making those rules a little easier for a smaller business, which is never going to have much in the way of economies of scale, to be able to tap in, join with other employers, and achieve the economies so they could bring down that cost-of-fees element.
As Ian Lee mentioned earlier, yes, we have done a lot of research on the large and growing gap between not just pensions but pensions as well as remuneration in the public sector versus the private sector. It's present at all levels of government. We'll just focus on the federal for the moment.
The current gap, if you include salaries plus pensions and other benefits in the federal public service, averages over 40%. Obviously that's a significant number. A lot of people have put forward the notion that as far as this issue goes, all we need to do is to get businesses to pay the same as they do in the public sector and all our problems would go away. For starters, if we did that, we wouldn't have any businesses left, because they simply couldn't compete. They have to compete in the marketplace, which governments do not. Also, they're not unrelated issues. Again, the example that if people don't have the money to put into an RRSP, there are probably a number of reasons for that. One is that we have quite high tax levels. The more you tax people, in part to pay for very generous pensions and benefits in the public sector, the less they're going to have to put away for their own retirement. So some fairness needs to be brought to bear there, and we very much believe that no one in the private sector—employee or employer—should be asked to put up one more cent to any kind of mandatory pension solution until we've made a start on bringing some fairness to the public sector versus the private sector disparities.
Entrepreneurs also have some special challenges in their own retirement, succession, whatever you want to call it. We have a large baby boomer contingent in the small-business sector, just like every other sector of the economy. They're looking to retire. We were very happy that government increased the lifetime capital gains exemption from $500,000 to $750,000 a couple of years ago. There are other measures. I'm saying don't only focus on pensions; maybe focus on some of these other tax measures that could also grease the wheels for the entrepreneurial group to be able to hand off, sell their businesses successfully. That's often their own retirement.
That leads me to the first slide here, which is based on some data going back to 2006. We're right in the middle of doing another survey on a bunch of related issues and will have that by the end of the month. So we'll be able to meet the deadline and will make sure that you get that information. We'll probably have it in about ten days, I would say. So these data are a bit old, but I don't think they're going to be terribly out of date.
When we asked our members in 2006 what was important to them in their own retirement, personal savings and assets were number one; lifetime capital gains were obviously also very important; then proceeds from the sale of a business, naturally; and RRSPs were not unimportant in the mix; and then there were dividends from business; and then the CPP, and so on. You can see that there.
The next slide looks at the types of plans offered in the workplace. Again, there are a lot of impediments right now to offering workplace plans. We think it's a good target area to do some work—and, again, you can see those data for yourselves. By and large, there are not pension plans offered in most of the small-business workplaces, and the typical tool tends to be group RRSPs. The third slide shows that matched employee contributions to a group RRSP is the most important tool.
For the owners who do not offer a plan, the number one reason obviously was that it was too expensive. Just under a third said it was too complicated and burdensome, and a pretty significant contingent of business owners, about a quarter, had no interest in offering a benefits plan because their employees say that's not where they want to go. So they don't see the value in offering that kind of plan.
When you look at the private sector versus public sector issue in terms of registered pension plan coverage, it's virtually 180 degrees different. There's very large coverage, over 80% coverage, in the public sector, and just a little bit less than that in the private sector. Those are StatsCan data, by the way.
Retirement age is something else. Some others were talking about the need to increase retirement ages, as we're living longer, which is good, but it does put the pressure on pensions. On this slide, we see those in the public sector retire significantly younger than those in the rest of the economy.
I know a lot of people say that public servants pay for their pensions. Well, the current federal situation is that they actually only pay 32¢ on the dollar now, but it is slated to go up to 38¢. So about two-thirds is being paid for by the private sector. Even so, private sector workers can't afford to put away for themselves what they are required to contribute to public sector pensions. So even if it were a 50-50 split, it wouldn't achieve fairness.
Finally, just to sum up, we have this two-tier system, the private versus public systems. It causes labour market distortions, as small business often get their employees poached away by the public sector. Of course they're subsidizing that poaching with their own tax dollars, and that is a little perverse. There's also the problem of the aging population, and so on.
Just in closing, we really need better information on our public sector liabilities. We see the trouble Greece got into, in part because it has a very bloated public sector with very attractive benefits. That's not Greece's only problem, but it's a key one. In Canada, we need to get a grip on our own issues, so we need better disclosure from government.
Thank you very much.