Finance Committee on April 20th, 2010

[James Pierlot]

I was formerly with a consulting firm analogous to the firm that Malcolm Hamilton belongs to. My speciality is in pension law and also in the area of pension tax law. I wrote a paper in 2008 that I published with the C.D. Howe Institute, which I will certainly make available to you.

Yes, this is what I was proposing in this paper: that everybody's retirement savings be subject to a lifetime limit, which effectively would allow for catch-up retirement savings when people incur losses in the markets.

[Mike Wallace, Conservative, Burlington, ON]

We're hearing a bit about an additional voluntary program for CPP. I don't understand, personally. My contribution to my RRSP is voluntary. Aren't those with cash going to be taking advantage of it, and those who actually need to be saving, if it's voluntary... What advantage does this give to them?

[James Pierlot]

I think that's a legitimate question, because really, a voluntary CPP is a big RRSP in which everybody participates. Why is that better than participating in an RRSP on your own? Well, there might be a couple of reasons.

First of all, if you're putting your money into a fund that is professionally managed, as the CPP Investment Board does now, maybe your fees will be a little bit lower and your investment results a little bit better. Because typically people don't choose their investments very well, and they don't do as well as large pension managers do with the money.

The other advantage is that you don't have to think about it.

But in essence, putting your money into a supplementary CPP is pretty much the same as putting it into an RRSP, conceptually.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

You can certainly send your report to the clerk, and we'll distribute it.

[James Pierlot]

Okay.

[The Chair, Conservative, James Rajotte]

Also, Mr. Hamilton, you mentioned the Mercer study earlier.

[Malcolm Hamilton]

Yes.

[The Chair, Conservative, James Rajotte]

If we could get a copy of that as well, we'd appreciate it.

[Malcolm Hamilton]

Sure.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Marston now, please.

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

I want to thank the guests today. This has been one of the better discussions we've had in regard to pensions.

I have a couple of quick things. Earlier it was mentioned that there was an economic crisis as opposed to a pension crisis, but it did cause people, because of AbitibiBowater, Fraser Papers, and Nortel--and the list goes on--to step back and ask, what can we do? As we looked at things, we found out that 300,000 Canadians live on less than $1,160 a month, which is below the poverty line, because they only collect GIS and OAS. There is a critical problem there.

Again, you've heard me say several times that 63% of Canadians have nothing at this point; they're not doing anything. We had a witness say the other day that Canadians are pushing more debt forward than at any other time in history. There are a number of things in play here.

I keep coming back to the foundation--our public pension system. That's why we talk about expanding CPP, and in a mandatory way for those people who have made the choices. We're not trying to take away from the ones who have the discretionary moneys to go further than that, but to try to ensure.... I mean, we either pay now or we pay later.

Ms. Marin, there's something I'm going to say to the government that I think you should listen closely to. You had Nortel with a situation of $2.4 billion in cash assets and about $4 billion, if the numbers are right, in other assets. A lot of it has been transferred to the U.S. estate and that has presented a real problem. To the government, I would suggest that somebody on the government side take a look at asking, under the terms of NAFTA, for opportunities equal to those of those estates, because I think there's a potential opening there for this, and it should be followed up on. I'd really appreciate it.

Now, Mr. Hamilton, a few minutes ago you were about to make a comment, and you were stopped. Is there anything you'd like to add?

[Malcolm Hamilton]

I did want to comment on the fees in the British plan because I'm not sure people are properly understanding them.

So in essence, understand how these fees work. There is a fee on contributions and then there's a fee on your assets. If you trace a contribution, it goes in one year and typically comes out 25 years later; you pay the fee on the contribution once and you pay the fee on the asset 25 times. So if you have system that's charging 2% per annum on assets—

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

That's huge.

[Malcolm Hamilton]

—every dollar that goes in is paying 2% 25 times before it comes out. That's a third of your savings gone in fees.

As for what the British did, they have a very low fee on assets of 30 basis points. They've introduced—albeit late in the game, and everybody is upset—a 2% fee on contributions. But if you did a weighted average and you said you're putting money away for 25 years, and you'd pay 2% up front and 0.3% per year thereafter on the asset, what does that work out to as an equivalent charge per annum on the asset? It would be about 0.4%. It's nothing like 2%.

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

Sure.

[Malcolm Hamilton]

The math there is very important, because if your retirement savers end up losing 5% of their savings along the way, they're hugely ahead of losing 30% of their savings along the way.

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

We certainly appreciate this caution on that.

Going back to the national pension insurance for a second, you talked about Ontario. Its scheme was introduced in the 1990s, but it was chronically under-funded. It was ignored by three governments, three different parties, over a period of time. I'm not so sure that the concept might not have been good in the beginning, but there's no point in having these plans unless we're going to fund them properly or we have a way of funding them properly.

[The Chair, Conservative, James Rajotte]

You have one minute.

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

I guess for us in the NDP the bottom line in this is that we're looking at securing the foundation, and on the conditions that you've been asking for, over and above, for business, we're not opposed to those, to a legislative change. We wouldn't be opposed to that at all. If we can manage across the spectrum in a fashion that takes care of those people at the bottom end and allows for other options, there's not a problem there.

I know that I'm pretty well out of time.

[The Chair, Conservative, James Rajotte]

We have 30 seconds for a very short response.

Mr. Hamilton?

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

[Inaudible--Editor]...not going to vote NDP on the spot, so...?

[The Chair, Conservative, James Rajotte]

Ms. Reibel, do you want to respond briefly?

[Sue Reibel]

I think we have to be careful about how broadly you make that statement, too. Because as Malcolm has said, the income earners at the bottom end of the spectrum in Canada, relative to other countries, are well taken care of. There has been a lot of work. I understand that there are always individuals who are struggling, and that is unfortunate, but we have a very strong first two pillars, and I think we have to look at where the challenges are in the middle income bracket more so than focusing broadly across all.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.