Finance Committee on April 15th, 2010

[The Chair, Conservative, James Rajotte]

Thank you for being here.

They're here to observe our discussion on pensions and witness discussions on truth to power, as Mr. Lee would say.

We will go now to Ms. Block, please.

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

Thank you very much, Mr. Chair, and thanks to everyone for being here and for your presentations today.

My comments and my subsequent question will be for CFIB.

We've repeatedly heard proposals that would double or greatly expand CPP benefits. I hadn't heard a lot about the cost it would impose on small to medium-sized businesses until your presentation today. I note you have spoken before about some of the dangers, as well as national backstops, of public insurance funds for pensions. I'd like your views on this.

However, before we go there I would like to share the following exchange that occurred at the status of women committee between my colleague Mr. McCallum and Dr. Edward Whitehouse of the OECD. I quote Mr. McCallum:

My last question is on pension insurance. I think it was Ontario, the U.K., and the U.S. that we heard were in deficit, and it's a problem. Many people argue that there's a moral hazard issue with pension insurance. First, do you agree with that? Second, are there examples of pension insurance operating successfully among OECD countries?

Mr. Whitehouse, who is the head of pension policy analysis and social policy division for the Organization for Economic Co-operation and Development, responded with the following:

The United States set up the Pension Benefit Guaranty Corporation in the mid-1970s. Many distinguished economists have written about the PBGC, and as far as I can see, this insurance fund was essentially in very large deficit from day one when it opened. It really acted as a very large subsidy to airlines, steelmakers, and carmakers over the ensuing years

He went on to say:

The pension protection fund in the United Kingdom tried to learn some of the lessons of what went wrong with PBGC in the U.S. I'm afraid that I don't think there is a good international example of one of these types of insurance funds. In theory--I'm not referring to any of them in practice, but in theory--they have the danger of becoming like a black hole. They can suck in a lot of money very quickly.

I note that in a December 16th letter to the federal, provincial, and territorial finance ministers, you recommended the following:

CFIB members overwhelmingly reject the notion that governments should backstop them. Guaranteeing pension plans exposes them to future financial risks and creates a disincentive for the plans to be cost-effectively managed. It also sets a dangerous precedent by giving other troubled pension plans reason to ask for this type of lifeline. Bailing out certain pension plans “on the fly” will certainly have a long-term detrimental effect on public finances.

I'd like you to expand on that comment, if you would.

[Catherine Swift]

I'm glad that somebody reads these letters.

This is the conundrum of these kinds of funds. We consult with actuaries all the time. We're not actuaries, although we're rapidly getting there--I'm thinking that will be my next career.

My understanding from the people who look more closely at these issues than I do is that it has never worked anywhere, ever. I know that's not a good answer.

You talked about Quebec. It's the taxpayer subsidizing....

So who gets the subsidy? The unfortunate reality, from a macroeconomic standpoint, is that you have the good companies, and of course personal taxpayers as well, subsidizing the bad. That has been the experience. That's a fact.

You can say set up a fund.... The Ontario government just devoted half a billion dollars of taxpayers' money to its fund, which they've had in place for quite a while. It's a royal failure. If you want a Canadian example, there is a recent one.

You're right. We're repeatedly subsidizing. They tend to be more standard industrial industries--steel, autos, and that kind of thing. We're representing the small businesses, and our members don't get those kinds of bailouts. They're never eligible for them, but they are subsidizing them.

From a macroeconomic standpoint, you're getting the successful repeatedly subsidizing the unsuccessful. I think anybody can see that's kind of.... You might agree you want to do that but you don't really know why.

The line about pensions is that everybody wants to go to heaven but nobody wants to die. Everybody wants a guarantee, but ultimately people pay for those guarantees. That's the problem in a nutshell, and that's the challenge for policy-makers. How do you balance off these competing interests?

The last time I checked, nothing is guaranteed on this planet. We do the best we can. This is where we hopefully can find a mix of things that will help people help themselves. Everybody wants a decent retirement for everyone. We can all agree on that. How do we best achieve that without overly burdening any one group?

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

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Block.

We'll go now to Mr. McCallum.

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

Thank you, Mr. Chair.

I'd like to make three fairly quick points and then I'll share the rest of the time with my colleague Mr. Pacetti.

I want to confirm that when I asked the question, I believe Ms. Swift, Mr. Farrell, and Mr. Lee expressed support for some kind of voluntary supplementary CPP. Right?

You all nodded your heads.

Nobody can disagree with being prudent, but I think the main difference between us and the Conservatives is support for this voluntary CPP. The three witnesses said they support this.

[The Chair, Conservative, James Rajotte]

I think Mr. Farrell wants to comment.

[John Farrell]

For a clarification, that's a voluntary employee contributory arrangement, and not a joint contributory arrangement.

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

Okay, thank you.

My second point is to Mr. Markham. I'm not sure if your point about the U.S. insurance for pensions is quite accurate. I am told that the weaker the position of your pension plan, the higher the contribution rate, so bad performance is penalized and good performance is rewarded. If you structure the contribution rates correctly, then you can deal with the problem you raised.

[Ian Markham]

You're correct. With these various schemes around the world, I think by and large they do try to have contributions that are based on risk. But when you have a very large organization that fails, its massive deficit can then swamp the whole insurance scheme, dropping its own funding to very dramatically low levels. That has to then be built up on the backs of others, even though they were paying contributions on that basis.

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

Okay, thank you.

I'm rushing a bit because I don't want to take all the time.

My last point is that there is a tendency between the government party and Jack Mintz to paint a very rosy picture of our pension system. I've been in an academic world and I know about selective use of statistics. I agree that in some areas Canada is very good, such as the statistics on older people.

If you look at the core statistics for the OECD, which is the replacement rate in retirement for people of average income, Canada's figure is a 44% replacement rate for the person with the mean income, compared with 58% for OECD. I don't think it can be said that our overall performance is anything so terribly wonderful.

I'll leave it at that and turn to Mr. Pacetti.

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

Thank you, Mr. McCallum.

Thank you, Mr. Chairman.

I have a couple of questions, but I want to go back to the issue of this CPP, voluntary or mandatory. If everybody is in agreement with voluntary, there isn't a problem, but statistics show that a lot of people have not been able to contribute to RRSPs. The only thing that will happen is that the people who have the money will voluntarily put it into the CPP, so I don't think we'll solve the problem.

Our job is to try to find perhaps a middle ground or a middle road. If we're looking at something that's going to be useful, let's say 15, 20, 25, or even 30 years down the line, can't we find a middle ground?

Ms. Swift, my experience as an accountant is that small businesses are willing to do something for their employees if it's going to help them keep their employees. In the surveys, it's too expensive. It's always too expensive for small businesses, but the complicated part is what I've always found. If we can ameliorate something that is already there, being the CPP, it doesn't necessarily have to be doubled, because I think that would be too costly for the employer, but something in the middle would probably work. Couldn't we work towards that?

Mr. Lee, in terms of what you were saying, that the public service pension is too much, that would be an area where the public service pension could be reduced, because they'll have a CPP in 15, 20, or 25 years to compensate for the additional CPP payments. So couldn't we find a middle ground, somewhere that private industry and the public would actually find a middle road?

[The Chair, Conservative, James Rajotte]

We have about 30 seconds, but we will have time for another Liberal round. So shall we get one person to respond now?

Mr. Lee.

[Prof. Ian Lee]

I don't disagree with what you said in principle, but I really do think the solution is raising the retirement age. Whether it's age 70 or not, one can quibble over that, but if we look toward increasing it—I shouldn't have said the retirement age, I should have said the pensionable age, because you can retire when you want, just fund it yourself—the pensionable age is critical.

I don't think most people would argue that western Europe is a socially unjust part of the world. They're moving very strongly across Europe towards age 67 or 68, and they're talking about going to age 70. I think that would wash away or deal with a lot of the sustainability issues, as well as the fairness issues, if you had one common pensionable age at which you could draw a pension.

[The Chair, Conservative, James Rajotte]

Thank you. We'll come back to that in another round.

Monsieur Généreux, s'il vous plaît.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

I would like to thank all the witnesses.

Mr. Marston, you asked the witnesses earlier whether all these people earned less than $50,000 a year. Given that I am an entrepreneur myself, you have somewhat insulted me. In the last 15 years, before I was elected as an MP, I earned $25,000 a year because I had decided to be an entrepreneur, to create jobs. I have been a member of the CFIB for about 15 years. I made a personal choice, to be an entrepreneur and work 80 hours a week, and I succeeded. Today, I have 20 employees and a $2 million turnover. I'm very happy doing what I do. However, that has nothing to do with what you earn or don't earn. It's the responsibility of making sure that one day, what we do belongs to us. I sincerely believe that this is up to all of us, each of us individually.

Ms. Swift, I appreciate your remarks. As I said earlier, I am a member of your organization.

Do you think it is realistic to think about 70 as the retirement age?

[Catherine Swift]

When you think of the fact in the introductory comments that people used to retire at age 65 and die before age 70, it's not that we're recommending that, but we have increased our lifespan massively. Again, that's a good thing. But when you look at the math of these pension plans that were put in place, it's not only longevity; it's decreasing retirement age, notably in the public sector. It's not changing in the entrepreneurial sector; it's exactly the same retirement age as it was 30 years ago, age 66.

I do think it's something again where, if you phase it in over time, it doesn't have to be terribly punitive. There will be opposition. Of course there will be opposition. That's one thing.

The other element that hasn't even been mentioned is health care costs. When you see a lot of pension plans and some of the defined benefit plans—again, notably in the public sector—they have health care elements attached to them. That is also going to up the costs, because health care costs, as we know, are going nowhere but up.

So there are a lot of reasons we really should look at increasing the retirement age. That's one part of it, but it's not the only part of it.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you.

I will be splitting my time with Mr. Hiebert, but first I would like to ask one final question.

No one today has talked about the Nortel employees who have fallen completely into the void in terms of disability payments. I think that is really a pity. They lost everything, which isn't the case for Nortel retirees. No one talked about that in the presentations.

Mr. Farrell, could you talk about that? Unless the fact that people who become disabled have no pension, no protection whatsoever, doesn't interest you.

[John Farrell]

What has happened at Nortel is very unfortunate. Nortel has a terrible situation. I think they have unique circumstances, with respect to the way they managed their arrangements and their long-term disability plans, that don't necessarily exist in other situations.

Certainly we've been through a very difficult time in the last few years with respect to pension plan funding. It's been the most horrendous time most people who deal with pensions have ever experienced. I think we have to make sure that we don't have some sort of knee-jerk reaction and change the way everything is managed in terms of pensions in Canada just because we've had a very difficult time in the last few years.

I believe that if the regulators are working hard with the employers who are providing private pensions, and if the governments are listening to what people are saying, as you are here today, we can find solutions to problems without necessarily having to change the entire rule book. I think there's lots of opportunity to have great dialogue in this country about solving pension problems, to work closely with regulators, and to make sure that pension plans that somehow get offside are brought back into the real world.

[The Chair, Conservative, James Rajotte]

You have 30 seconds, Mr. Hiebert.

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

Okay, I have a quick comment.

I've heard the opposition talk about a voluntary, employee only, CPP supplement. Other than being a mandatory payment, that sounds a lot like a personal, private investment plan. I'd love to get some comment on that.

Mr. Lee, you mentioned that homes are the primary investment of Canadians and that they should be viewed as investments that can be used in retirement. Later on you mentioned that your own mother died at 93 in her own home. I'm wondering whether she was able to access the equity in her home.

[Prof. Ian Lee]

You've asked a good question. No, she wasn't; she lived there. I'm not suggesting that all homeowners, when they turn 65, liquidate their homes.

I am doing research on this right now. I wish I could give the data to you. I can't really disagree with Ms. Di Vito. I don't have the data. We know, every one of us in this room, anecdotally, that some people, when they retire, downsize. My brother just sold his house in Edmonton to buy a house in Thunder Bay for half the price. There's lots of anecdotal evidence. What I'm looking for is empirical data on this issue that I can report back on.

[The Chair, Conservative, James Rajotte]

I'm sorry, but I'm trying to keep members to their time, and we're well over time here.

Go ahead, Mr. Pacetti.

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

Thank you, Mr. Chairman.

If we could pick up where we left off, Mr. Lee, what would happen if we increased not the retirement age but the age at which we could start collecting our CPP? What would happen exactly?

[Prof. Ian Lee]

Do you mean if we increased the minimum pensionable age? It would reduce the pressure on pensions. It would reduce the payouts.

Right now, in the public service, you can retire at 55, as you know.