Evidence of meeting #8 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was pensions.
A recording is available from Parliament.
5:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Will we increase the amount we'll collect, or will we decrease the payments? How would you view it?
That would be the problem, right?
The other problem is that there's a five-year discrepancy between women and men, so I think men should probably collect at 65 and women at 70, and that would probably equate.
5:10 p.m.
Voices
Oh, oh!
5:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Somebody has to stick up for us men.
Ms. Swift, in terms of finding a balance and small businesses being able to pick up some of the costs of these mandatory or voluntary schemes, there'd have to be a cost somewhere. I just don't see how it would be cost-free to anybody. Businesses would have to somehow be involved in any decision-making that took place.
5:10 p.m.
President and Chief Executive Officer, Canadian Federation of Independent Business
This is one of the reasons for the survey we are currently in the middle of conducting. We want to understand what the major pressure points are. We know, however, through other ongoing research we do, that the number-one problematic tax for small businesses is the payroll tax. This is a payroll tax.
Again, never say never. What is reasonable? There's no silver bullet. CPP isn't the silver bullet. We really do need a multi-faceted solution to this.
5:10 p.m.
Liberal
5:10 p.m.
President and Chief Executive Officer, Canadian Federation of Independent Business
We'd all love one, but let's be realistic: there isn't one. This is why we're doing the study. We'll have it to you and everyone else before the end of the month, before the finance minister's consultations are done.
5:10 p.m.
Liberal
5:10 p.m.
Canadian Retirement Innovation Leader, Towers Watson, Federally Regulated Employers - Transportation and Communications (FETCO)
I want to jump in. Earlier you asked a question about what would happen if there were a voluntary CPP supplement, which would be on a defined contribution basis. It's going to suck money out from the RRSP contributions people would have otherwise made.
There's a very important point here. One of the biggest drops in people's retirement incomes is the expense ratio charged for the ability to get any investment income. Many people don't understand how to invest their RRSPs, so they tend towards fairly high-cost vehicles. If you have a voluntary supplement to the Canada Pension Plan, it could be run, theoretically, at a much lower expense ratio. The impact would be huge.
5:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Then you'll be able to cover many more people. That's the whole idea here.
5:10 p.m.
Canadian Retirement Innovation Leader, Towers Watson, Federally Regulated Employers - Transportation and Communications (FETCO)
But it can also enhance their pensions. If it does suck away the RRSP money from higher expense ratio investments, then maybe over time it will actually enhance the pensions people have access to.
5:10 p.m.
Director, Retirement Strategies, Private Client Group, BMO Financial Group
I do have a question. When we're talking about the the Canada Pension Plan, one of the things about being in the financial services industry is that I know Canadians are very concerned about leaving an estate. Under CPP currently, if you are 65 years old and contribute your entire life and start collecting at 65, and die a year later, notwithstanding our longevity issue that we've discussed, what happens to the CPP? You get the maximum $2,500 death benefit. So if we are diverting funds from an RRSP where there is estate value left, what is the solution potentially for CPP? That's my concern, that currently there is no estate value left there.
5:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
I think we're all in agreement that we need various sources of pension and all that, but the idea also of increasing the CPP is to make the net bigger as well, to expand it, and to try to bring in the people who are not contributing to an RRSP and don't have access to a public pension plan.
Catherine, when you survey your members sometimes you'll just ask a general question--would you like to increase QPP or CPP payments--and I don't know how I would answer that if you don't quantitate it. So I don't know if that's a solution.
5:10 p.m.
President and Chief Executive Officer, Canadian Federation of Independent Business
What we make a point of doing, especially on these kinds of issues, which are complicated.... And as I said, I mentioned it earlier, when the prospect was doubling CPP premiums back in the mid-nineties, we did a very comprehensive survey and we did a huge education portion of that along with it. You know what? Our members said okay. They said “We'd rather do something else, but we understand the value of this. It's important to us, so phase it in over several years.” And that's what happened, and so on and so forth. So, no, it's of no interest to us or anybody else to ask a question that we don't get an accurate answer on.
One point I want to make very quickly is on something that really hasn't been discussed--it's been discussed a little tangentially--which is that a lot of the problems are at lower income levels. Because really, there are certain target groups that are the ones we really need to worry about; we don't need to worry about everybody. Lower-income to middle-income people are the ones who are likely to have the biggest deficit here in the private sector. We have a punitive income tax system, notably at lower levels. Really, if somebody can keep a bit more of their money, then they're going to be able to put some into a plan that they can't now. So don't throw that one out in your discussions either.
5:10 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Exactly. You guys have to stop raising taxes.
5:15 p.m.
Conservative
5:15 p.m.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Thank you.
To continue along the lines that Mr. Pacetti and myself were discussing, Mr. Markham, you said that you were in favour of a voluntary employee-only CPP supplement type of income. You said, if I understood you correctly, that naturally many Canadians find themselves investing in high management expense ratio types of investments. A mandatory supplement would force them not only to invest, but secondly would likely reduce their costs of investment because it would be managed by the CPP or some similar fund, and have a lower expense ratio. Are we simply saying that Canadians have a choice: they can invest their own money in an index fund, for example, with a low MER, and get equivalent kinds of returns, or they can have the government on their behalf withdraw from their paycheque and get the same outcome? Because it's not guaranteed.
What are your thoughts on that?
5:15 p.m.
Canadian Retirement Innovation Leader, Towers Watson, Federally Regulated Employers - Transportation and Communications (FETCO)
First of all, you used the word “mandatory” right in the middle of your remark there--
5:15 p.m.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Scratch the “mandatory”. We're talking voluntary.
5:15 p.m.
Canadian Retirement Innovation Leader, Towers Watson, Federally Regulated Employers - Transportation and Communications (FETCO)
Okay, it should be voluntary. If Canadians were generally astute in terms of how to invest their RRSPs, if they understood, if part of their education was a very thorough review of management expense ratios and how they work, and how important they are, and compound interest, if Canadians were actually blessed with that knowledge, then I suspect we may not be talking about a voluntary CPP too. I think the fact is that many Canadians still find investing in their RRSPs quite frightening--even though we've got Tina here, who is able to help them with these things--so they may make the wrong decisions. By having a body that has some excellent investment specialists who are able to provide vehicles that change their risk over from higher risk to lower risk over their lifetimes, have low management expense ratios available to them, that gives people the opportunity of saying, “I don't understand how to invest my RRSP. I can't gain access to investment counsellors because I can't afford it. I don't know where to find them. But here at least is a body of knowledgeable people who can help me invest and I should be able to get a far higher pension that way.”
There are other solutions, of course. The insurance industry is very interested in offering their services, and that may work very well as long as we can get the management expense ratios lowered down so people do indeed have access to something that would be of the nature of 40 basis points or 50 basis points.
5:15 p.m.
Conservative
5:15 p.m.
Director, Retirement Strategies, Private Client Group, BMO Financial Group
If I could just quickly comment, Ian, you're absolutely right. Within BMO Financial Group, Canadians do have access to professional advice to help them make decisions on how to invest their money. When we look at the management expense ratios, we do not want to overlook the fact that BMO Financial Group is the only Canadian bank offering ETFs, which are a very low-cost investment alternative. Then when we go beyond ETFs, we also look at many other saving vehicles that don't have management expense ratios associated with them.
My concern with having voluntary CPP contributions being managed by external professionals is how do we guarantee that this investment management would be sufficient? Just look at our pension plans. Will they be too conservative and err on the conservative side? Who will make up these types of deficits? Will we be any better off?
5:15 p.m.
A voice
That was a commercial.
5:15 p.m.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
It sounded a bit like that.
It sounds as if the answer is perhaps a combination of providing more options to Canadians, but also focusing on investor education. If we are looking for a solution that's 20 or 30 years from now, as Mr. Marston has suggested, investor education could be part of the plan to help Canadians understand their options. This would be one option but would not be mandatory. Then they could choose however they wished.
We didn't finish our conversation, Mr. Lee, because you were cut off. With the 30 seconds that I have, how would you propose that we address the problem of finding equity, or finding assets like homes that can be more available to Canadians when they retire?
5:20 p.m.
Director, Master of Business Administration (MBA) Program, Sprott School of Business, Carleton University, As an Individual
I'll give a very short answer. I think you have to get the data on this, the empirical data, to definitively answer what percentage of Canadians are downsizing or converting their home equity into retirement savings. Right now we're all talking about it, but we don't have hard data. That's what I'm doing research on, but there are also others doing research on this. Your committee needs that information. I think that many pension experts underestimate—that's my theory, my hypothesis—the value or utility of home ownership in terms of pensionable earnings upon retirement.
