Finance Committee on April 20th, 2010

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Généreux, please.

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

Thank you, Mr. Chair.

Mr. Hamilton, I want to continue along the same lines. I find the idea of preferred creditors especially intriguing. Earlier, I saw Ms. Marin's reaction when you were talking about the minimum interest income rates necessary for pension plans to survive. Ms. Marin is here to tell us about a human tragedy. Obviously, it is not interest rates that will save her life. So if I were in her shoes, I would hope to hear something to the effect that numbers are all well and good, but there is also a human element.

That brings me back to my initial question. Would the idea of preferred creditors—and I am picking up on Mr. Paillé's question a bit—really serve as a deterrent for companies that wanted to continue creating jobs and providing adequate pensions to their employees?

Do you follow me?

[Malcolm Hamilton]

It would make more sense to ask the corporations that than to ask me. I think it would complicate the borrowing of money for some of them, but they would know that better.

I want to point out something else about the way these plans are supposed to work. Pension plans used to be unfunded, and then they were funded. The proper way to protect people when these events happen is to have better funded pension plans taking less investment risk.

That's what insurance companies do when they write annuities. They take the money in, they buy bonds, they don't take huge investment risks, and they're well capitalized. So in 2008 the annuity payments continue, the disability payments continue, and the life insurance payments continue.

If what we want to do is have more secure disability benefits or more secure pension benefits in these plans, the natural place to start is with the funding requirements and with the investment rules, as opposed to trying to clean up the mess once the sponsor goes under and there isn't enough money. It's very hard to clean up the mess once you've allowed the mess to happen.

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

You also talked about obstacles to setting up better private pension plans. What obstacles are you referring to, in particular?

[Malcolm Hamilton]

I'm not sure that I was the one talking about that.

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

Maybe it was Ms. George or Ms. Reibel.

[Sue Reibel]

I believe I was.

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

Oh, sorry.

[Sue Reibel]

When we look at small businesses and what it takes to put a pension or a retirement program in place, especially when you get to businesses with fewer than 100 employees, they just don't have the administrative capabilities and the staffing resources to support such a thing. They have an office manager who does 10 or 15 things and they are not retirement or pension experts.

We have seen numerous companies get into trouble by trying to meet the compliance requirements associated with pensions. A lot of them just decide that it's not worth the aggravation to support and offer such a thing to their employees. They'd rather just give them the cash. That's what we hear is standing in the way of smaller employers putting a plan in front of their employees, so, one, make it easier for employers, and, two, make it easier for employees to then participate.

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

By the way, I belong to your organization. I am an entrepreneur with 20 employees. But we have never been able to put that in place because of the size of the business. It would require more resources than we have.

At another meeting, a witness spoke to us about multi-employer plans. What is the chamber of commerce's position on that option?

[Shirley-Ann George]

As you know as a member, we do offer multi-employer insurance plans in a number of different ways. To have the opportunity to also offer a multi-employer pension plan is something we would definitely look at if it were an option for us, but right now the law does not allow that.

[The Chair, Conservative, James Rajotte]

You have about 10 seconds.

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

In fact, I have another question for...

[The Chair, Conservative, James Rajotte]

I'm sorry. I think we're done. Merci.

We'll go to Mr. McCallum again, please.

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

Thank you. I'd like to share my time with Mr. McKay.

I have just one question for Mr. Hamilton about how good our pension system is compared with those of other countries. Your index put us at number 4 out of 11. I was just looking at some OECD statistics; I think they were the most recent ones. On average, for the average worker--I think it's the mean salary--if I remember the numbers correctly, the replacement rate for Canada was 44%, while for the OECD it was about 56%. So according to that measure, by OECD standards we're definitely below average.

I would have thought that replacement rate for the average worker was a fairly key statistic. We're better than average on the lower-income side. I think we're slightly worse that average on the higher-income side. We're definitely worse than average for the average person. I wonder how you would react to that or if you think that's an important indicator.

[Malcolm Hamilton]

Let's understand what that statistic is. That isn't the replacement rate of someone with average income in Canada; that's the replacement rate for someone with average income in Canada who's not a member of a workplace pension plan and who never saves a dime their whole life. That's basically what they get from government benefits. It's what they get from old age security, Canada Pension Plan, and the guaranteed income supplement.

That comparison is saying that if we look at just government pensions--if we don't look at private savings and if we don't look at workplace pensions--how does Canada compare to other countries? You're quite right: we compare very well if you're half the average wage. That's the place where Canada is relatively strong; we have a big safety net for low-income workers. At the average wage, we are less than other OECD countries on average, and at the high end we're very low compared to the other OECD countries. But that is just looking at government benefits.

Now, what we would be looking at is a retirement system. We're not trying to assess the adequacy of government benefits. The issue is, when you combine workplace pensions with the government pensions and personal savings, how does the income of retired Canadians compare to that of people elsewhere?

There is a statistic that I find more revealing. The OECD did a study in which they said they would look at the after-tax income of seniors in Canada versus that of working Canadians and adjust for family size to recognize that families need more money because they have more people to support with their family income. The ratio in Canada was 90%, i.e., seniors' after-tax income adjusted for family size was 90% of what it was for working people. In looking at the OECD countries, I think we were third of the 20 or so countries. So the conclusion was that when you looked at all sources of retirement income, our system was doing pretty well.

Again, I'm not advocating complacency. I'm not saying that because it's okay today for people already retired, we can safely assume that it will be okay 20 years from now for people now aged 45. But as far as how the system is doing today is concerned, it stacks up pretty well.

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

Thank you.

[The Chair, Conservative, James Rajotte]

You have one minute.

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

One minute? How do I always end up with the short end of the stick? Anyway...

Ms. Reibel, given your premise with respect to changes to the Income Tax Act, it seems to me that essentially you want an employee locked into the plan. In fact, in your third point, you say to limit the portability: “While they continue to be employed by the sponsoring employer, employees should not be permitted to transfer their assets out of the plan”.

Can you explain that and the rationale behind it?

[Sue Reibel]

Well, one of the advantages of an employer-sponsored plan is aggregation of people. That drives costs down to the benefit of all of the individuals in the plan. Having active employees remain in the plan and keeping their assets in the plan helps in economies of scale.

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

It works for you. I don't see how it works for me.

[Sue Reibel]

That gets passed on to the members. It all pushes through, so the more members, the more assets, and the lower the fees. If you restrict movement while they're actively employed by their employer, that grows the assets. It would work the same way in a pension. In any pension plan, the more assets and the more people there are, the lower the cost. It's also for the benefit of the individual, as they're receiving some significant value from their employer-sponsored plan.

[The Chair, Conservative, James Rajotte]

Thank you.

We can come back to you, Mr. McKay, after Ms. Block.

Ms. Block, please, for five minutes.

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

Thank you very much, Mr. Chair.

Thank you to all of our guests for being here. I've certainly enjoyed the debate today.

Recently I read in the April edition of “The Ambachtsheer Letter” an article entitled, “High Noon for Pension Reform: From Debates to Decisions”. I want to quote from it:

We have had the good fortune to be an active participant in this process since the beginning both as a contributor, and as a listener. Here, we offer our updated thoughts on each of the three major issues set out above and how they might be resolved. In doing so, we are mindful of Roger Martin's observation that the discovery of better answers should continue until the very end of the design process.

I want to build on what you said, Ms. George. You began your opening remarks by stating that this is “a hearing that matters” and that any changes made will have an impact on Canadians for years to come. I believe that, which is why our Conservative government is taking the time to conduct the kinds of consultations that we have, through this committee, our Minister of Finance, and our parliamentary secretary, and certainly we see what's going on with the provinces.

You also stated in your remarks that the Canadian chamber believes that Canada's current overall retirement savings system is sound and that legislators and policy-makers need to focus on “improvements in the gap areas, rather than fundamental changes”.

Can you just quickly recap for me what you would see those gap areas being? Then, I'm also wondering if you can comment as a national organization on the need for policy-makers, provincial and federal, to work together.

[Shirley-Ann George]

Thank you for that question.

The gap area that we were focused primarily on looking at today is the gap where 50% of employees and the self-employed simply don't have access to pension plans. That's a serious problem that needs to be addressed, so we would urge this committee to make sure that in any report you have you clearly recommend that this gap be filled, along with some recommendations on how to do it.

On your second question, I apologize, but could you repeat it?