Finance Committee on Feb. 16th, 2012

[The Chair, Conservative, James Rajotte]

Make a very brief response if you want, Minister.

[Ted Menzies, Conservative, Macleod, AB]

I guess Wayne and I can still remain friends, even though we do disagree on these small points.

I don't dispute the fact that it certainly would pay more, but how long does it take before it ever happens, and what happens to a business that is struggling to recover from the recession right now? They've told us loud and clear, through the Canadian Federation of Independent Business and many other business associations, please, don't raise our taxes.

[The Chair, Conservative, James Rajotte]

Thank you.

Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair, and I'd also like to wish the minister a happy birthday.

I want to briefly reflect on financial literacy. Certainly, I can recall in my youth—I have a health care background—many of the young 20- and 30-year-olds deciding to withdraw their contributions and have a great holiday, not actually having any understanding in terms of the impact that would have later in their life. I think we have some tremendous work we can do there in terms of preparing people to start thinking about what's available and how they need to prepare for it. So I'm really glad to see a lot of that work in terms of financial literacy going forward.

First of all, I'd like to get you to reflect on how the PRPPs will actually achieve low cost. I know we've had some conversations around the Canada Pension Plan and that it would be a change in the business model. RRSPs, of course, have significant cost, but can you talk again about how the PRPPs will achieve the low cost?

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Ms. McLeod.

It's a reasonable question, no doubt, because I think even Mr. Marston was concerned about how we keep the cost low. We keep the cost low through the scale and design of the fund: simple, straightforward, easy to administer, broad-based, and offered through as many competitors as the superintendent sees fit—to provide a broad-based pension available across any business that is interested in taking these up.

The low cost will be prescribed in the regulations and the regulations will be forthcoming. As I said, I think the worst mistake we could make would be to actually set a maximum management expense ratio, because that would be the default that everyone would go to. But the competitiveness of being offered broadly by a credit union, a financial institution, or an existing fund that's already operating will keep the cost low.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

The other thing that we often hear, and perhaps it's from the people who are looking for some opportunity to criticize PRPPs, even though I think it's such a great bill that there's not much room in terms of.... They say, well, this is not going to help Canadians save for retirement; it's just going to help the banks earn greater profits. Can you speak to that issue.

[Ted Menzies, Conservative, Macleod, AB]

Yes, I, too, have heard that criticism. I'm not sure why or where. There's the fact that these financial institutions will have to show a track record before they're ever approved to offer this and the fact that there will be oversight bodies making sure they do protect these funds for the members. Our largest concern is making sure that is protected...but offered by many different institutions, whether it's the public pension plan or the Saskatchewan Pension Plan. OMERS, the Ontario Municipal Employees Retirement System, has a very sound structure, and they're interested. I'm not suggesting they're going to qualify; that's not for me to decide. But the competition will keep the prices low.

I've had many discussions with the financial institutions, and they're of the understanding that this isn't going to be a high return item; it's going to be a high volume item. The banks understand that and they're interested; the financial institutions, the credit unions, are interested because it will be a large volume, so they can keep their costs low.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Quickly, if you were going to talk about the biggest difference between the PRPP and the RRSP, what is the biggest difference?

[Ted Menzies, Conservative, Macleod, AB]

It's protection. There is better protection, because it is treated as a pension.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Minister, we were advised beforehand that you have to leave at 4:30 p.m. sharp. Your officials will stay for the next hour.

Monsieur Giguère, you can have a two-minute round now or you can start the next round with the officials.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I'd like to ask the minister a few questions, particularly about the voluntary nature of this registered pension plan.

Already, 67% of the population does not have an RRSP. These are people with the lowest incomes, people who have absolutely no pension plan.

Why do you think that these people, who already can't pay their rent, buy groceries or cover their mortgage, are going to be more likely to participate in a voluntary registered pension plan?

[Ted Menzies, Conservative, Macleod, AB]

Thank you for that question. I also need to go back to previous questions about the mandatory Canada Pension Plan contributions.

If, as you say, they can't afford the necessities of life, in expanding the Canada Pension Plan we would take that money away from them and force them to put it into a retirement savings plan. But this—

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I can respond right away to what you said, Mr. Minister. The proposed Canadian pension plan is spread out over seven years and there's a delay of three years. So after 10 years people are going to be making the full contribution. In this case, your plan allows them to make the full contribution as of the first week. With the Canada pension plan, it's after 10 years that you can withdraw a fraction of the enrichment to set it aside as savings. The people don't have a real fall in income. It's simply that a fraction of the growth of their income is dedicated to the pension, which is very different from your plan. The drain is immediate and total.

Did you come to the same conclusions as I did in this respect?

[Ted Menzies, Conservative, Macleod, AB]

Not exactly, because we haven't told you what the deduction amount is. If an individual chooses—and I'm a big fan of choice—not to participate in a plan that his or her employer has offered to him or her, that's the person's choice. I don't feel that it's my right to force that on a person. We found that many of the other countries that have offered processes similar to this have found that people will stay in. It's overcoming inertia. You have to—

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I have one last question for you, Mr. Minister.

Your notes on foreign plans are fairly well done. Thank you. One of the major differences, though, is that the employer contributes to the voluntary registered pension plan. In fact, your own notes indicate that the employer matches the employee's contributions dollar for dollar. But this isn't the case with the plan you are proposing.

[The Chair, Conservative, James Rajotte]

Minister, can you just give a brief response? Then we'll wrap it up.

[Ted Menzies, Conservative, Macleod, AB]

Once again, the option is there for the employers to contribute on behalf of their employees. Once again, it's about choice.

[The Chair, Conservative, James Rajotte]

Thank you. Merci.

Minister, I want to thank you for being with us here today and for your presentation and your responses to our questions. If there's anything further you wish us to consider as a committee, we will be considering it over the next three and a half sessions of the committee.

[Ted Menzies, Conservative, Macleod, AB]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Colleagues, I will suspend very briefly to allow the minister to depart, and then we will resume again with the officials.

[The Chair, Conservative, James Rajotte]

Colleagues, I'll call the meeting back to order. Again, I want to thank the officials for staying the extra hour.

Unfortunately, two colleagues did not get their question time, so I'm going to go to them. I have Mr. Hoback on the list. Can I go to Ms. Glover, or is it Mr. Jean?

Ms. Glover, if you could, start us off, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Sure. Thanks, Mr. Chair.

While I have the opportunity, I want to welcome all of our officials. I know how hard they work on these very important projects.

I want you to take a moment to clarify something that was asked by opposition members with regard to the payments into CPP. Mr. Giguère suggested that he believes, for whatever reason, that no payments to CPP will come out of an employee's pocket for 10 years. The difference between the PRPP and the CPP is that under a PRPP, the choice is there to never pay if you choose not to stay in the plan. If we were to go to CPP, would employees have that choice to opt out?

[Diane Lafleur, General Director, Financial Sector Policy Branch, Department of Finance]

You're correct that there is the choice built into the framework for the PRPPs. There is the choice at the front end, where the employer chooses to join, where the employees have up to 60 days to opt out altogether, and even if employees do not opt out at the front end, if their circumstances change at some point in their employment—they might be facing financial difficulties or whatever—they can choose to set their contribution rate to zero for a period of time to allow them to get through that, and then at a later date increase their contributions again. There is that choice that is built right into the framework.