Evidence of meeting #9 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was money.
A recording is available from Parliament.
NDP
Conservative
The Chair Conservative James Rajotte
Thank you very much.
Colleagues, it looks as though there may not be a vote tonight. I think the vote is tomorrow. If the bells go, of course we'll have to end the meeting, but if not, I think we can fit in three short rounds.
We'll start with Mr. McKay.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I want to pick up on Mr. Wallace's concern about RRSPs and the opportunity to refund, if you will, your RRSP. If in fact, for argument's sake, I lost $50,000 in my RRSP and the rules were amended to put that money back in, do I get an additional $50,000 worth of income tax deductions?
Liberal
John McKay Liberal Scarborough—Guildwood, ON
If I've lost $50,000 in my RRSP and have $50,000 that I want to put back into my RRSP, and if the rules were amended to allow that, would I get an additional deduction of $50,000 off my income tax?
Lawyer, As an Individual
Yes, you would. The reason is that what I've effectively proposed is to equalize the tax treatment between defined benefit plans and DC plans. In a defined benefit plan, whatever is required to fund the benefit is tax deductible. If the assets of the plan go down such that there's not enough money for the benefit, you can put more in to top it up. There's actually no conceptional limit to the amount of money you can put in to top it up, and it's all deductible.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Isn't that a kind of moral hazard argument, though? Particularly if I've self-administered--but even if I'm not self-administered--it is arguably, from a tax standpoint, advantageous to me to mismanage my RRSP.
Lawyer, As an Individual
I'm not sure how it could ever be advantageous to lose money in your RRSP.
Liberal
Lawyer, As an Individual
Ultimately, even though you get the additional tax deduction, you're still going to be out of pocket more money--
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Yes, I agree with that. But on the other hand, the government's revenues are down by a similar amount of money.
Lawyer, As an Individual
They are down in respect of the tax deduction, but my point is that this is already happening for the fortunate people in defined benefit plans. But it's not available to the people in the DC plans and the RSPs. Those people in the DC plans and RSPs, which are most private sector workers, get lower overall contribution deduction room, plus no ability to catch up. So we really have a two-class system here.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
To show my great generosity, I'm going to share my remaining two seconds with Mr. McCallum.
Liberal
John McCallum Liberal Markham—Unionville, ON
I probably have about 20 seconds.
I just want to confirm one point with Mr. Hamilton.
Are you saying that the British system, when you combine the 200-basis-point contribution rate and the 30 basis points per year, is equivalent to 40 basis points per year?
Senior Partner, Mercer
I'm guessing that for somebody whose money is in for 25 years, it would work out to something like that. It's easy arithmetic to do.
Liberal
John McCallum Liberal Markham—Unionville, ON
I just wanted to make sure Mr. Menzies heard that. Thank you very much.
Senior Vice-President and General Manager, Group Savings and Retirement Solutions, Manulife Financial, Canadian Chamber of Commerce
May I add one comment on that?
Senior Vice-President and General Manager, Group Savings and Retirement Solutions, Manulife Financial, Canadian Chamber of Commerce
The analysis that has been done so far in Britain has actually equated it to about 1.5% for the immediate future, for the next 10 years, when they've done that. When you look at it for 40 years as Malcolm does, yes, it drops down significantly, but they're looking at people who are 10 to 15 years away from retirement and what that cost is. Again, it depends on how you look at your math, but this is what I've been reading. They figure it's about 1.5%.
Conservative
Bloc
Daniel Paillé Bloc Hochelaga, QC
I just have a brief comment on this.
Clearly, it always depends on the period. Even though the Canada Pension Plan is valid right now, there may be problems 15 or 20 years down the line. When all the baby boomers—and there are many here at the table—leave politics and really retire, then there will be a problem.
Earlier, Ms. Reibel, with respect to what my NDP colleague was saying, you indicated that it was dangerous to make generalizations. But you can also have generalizations at the other extreme, which are also unique, when you say things such as the poorest people in Canada by and large receive the best treatment in the world. But that cannot serve as an excuse not to look for ways to increase the state's capacity to offer better pension plans to its citizens. There are still a tremendous number of things that need improvement. When you look at the situations that employees of Nortel, Atlas Steel and others have described to us, it is clear that there is still a lot of room for improvement.
I would just like us to be cautious in terms of estimating the cost. Of course, we can talk about 50 or 250 business points to scare people. But it is a matter of management capacity, and sometimes you have to be confident. Compare Quebec's pension plan to Canada's. The small decision that Quebec made in the 1960s to fully fund the plan has given rise to tremendous results to date, as compared with Canada's situation. Of course, there was 2008—as Mr. Hamilton pointed out—when things went downhill. But when you study a pension management model, you look at more than a single year. As for what you said earlier about losing $200 billion or $300 billion in 2008, it is important to note that that money was made back in 2009. I think we need to use caution there.
Thank you for meeting with us.
Conservative
Senior Partner, Mercer
The only comment I'd make is that it hasn't been made back. One thing you have to understand about the pension math is that if you lose 20% one year and you make 10% the next, you're still down 10%.
But that's not the big thing. The big thing is that you weren't supposed to do zero and zero; the whole thing is planned on the assumption that you're making 6% a year. So when you're supposed to do 6% and 6% and you end up at minus 10%, you're still 20% down from where you're supposed to be. So pension plans, notwithstanding the fact that 2009 was good, are a long way from being back to where they're supposed to be.
Bloc
Daniel Paillé Bloc Hochelaga, QC
I think we understand the math. If 20% is lost in one year, you need to make 25% the following year to make up for it and be at 0/0. I think we understood that.
