Finance Committee on Feb. 28th, 2012

[Susan Eng]

We have heard the argument that the increase in CPP premiums would be a job killer, which is why we put together the calculation.

As I mentioned in my remarks, the total amount for a low-income person, which is in fact the people we worry about, who are working in small businesses, people who might be working at approximately $20,000 of income, the additional monthly amount for employer and employee is $18. We would submit that while that amount is more than they're paying, it's hardly a job killer.

We believe that on balance, for those circumstances where pensions mean the most to people, and they're in no position to have a lot of excess money to put into a PRPP, the CPP enhancement would mean the most to them, and we believe it's cost-effective.

[The Chair, Conservative, James Rajotte]

Mr. Kelly.

[Daniel Kelly]

The piece I struggle with in regard to that argument—about the fact that $18 per month may not be a big deal to put into a CPP premium increase—is that it would probably be about the same amount of money whether you're putting that into a PRPP or into the CPP. If a PRPP is unaffordable, how is a CPP premium increase affordable? The employee gets hit with that, as does the employer through a mandatory payroll tax.

The piece that is best about this piece of legislation is that it is voluntary and that it has potentially lower costs. The financial services industry could screw this up—and my apologies to one of the two CBAs sitting next to me—if the financial services industry views this as a cash cow, and keeps management fees at the same levels as the RSP management fees and some of the other tools it goes on. We'll have no better luck with a PRPP than we do with some of the other tools that are out there right now. Low cost is very important.

If that is the case, if we can keep this voluntary and we can keep it low cost, we see this as a far better option to a CPP premium increase. I'll repeat this again. To the employee, putting aside money into CPP or whatever or into a CPP premium increase is deferring your compensation today for benefit in the future. To an employer, it's a payroll tax increase, and that's what we're struggling with.

[The Chair, Conservative, James Rajotte]

Unfortunately, Ms. McLeod's time is up. This will be a debate, I'm assuming, over the next hour and a half. I'm sure we will come back to it.

We will go to Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair

Thank you to each of you for appearing before us.

Welcome back to the committee, Mr. Wrobel. He has a long and storied history as clerk of this committee.

First of all, we support this legislation and see it as a small step forward. We don't see it as the panacea being described by the Conservatives, and we don't see it as the Antichrist being described by the New Democrats. We're Liberals. We're kind of in the centre on these issues. What we would propose that would make it a better option is if we had, in addition to the PRPP, a voluntary supplemental CPP into which Canadian employers and employees could pay. It would provide a defined benefit advantage, well managed, diversified across asset classes, across sectors, across geography.

Mr. Wrobel, you said that banks are well positioned to provide low fees. I suspect Mr. Kelly might challenge that. I do agree with you that banks are well positioned, but there's a risk today with the bank earnings under so much pressure due to a whole low interest rate environment and the spreads being so narrow that there could be some upward pressure on bank fees. Would it not help the banks, which are well positioned to provide low fees? Would it not enable them to provide even lower fees if there were a really low-fee alternative in a voluntary supplemental CPP?

I would like to ask Ms. Eng, Mr. Wrobel, and Mr. Kelly—in fact, any of you—whether or not a voluntary supplemental CPP might actually strengthen the PRPP option.

[The Chair, Conservative, James Rajotte]

We'll start with Ms. Eng.

[Susan Eng]

We think it would. We agree that purchasing a unit of CPP is probably the most cost-effective way in Canada today to buy a piece of pension savings. That said, there is also the advantage that the CPP already exists. The payroll deduction system already exists. The individual accounts already exist. The banking industry would have to put that in place in order to offer the PRPP, for which we will be paying. There's that opportunity as compared to the two. There's good research out there, including from the people who run DB plans, that a defined benefit plan gives you more bang for your buck of investment. They could offer more. They can keep the pension promise. In fact, today's Canadians, and retirees especially, are looking at predictability and adequacy. Those two things can only be provided by a DB plan.

If you made it voluntary, given the choices, they would flock to it. We would of course say that perhaps it should be mandatory with an option to opt out.

[The Chair, Conservative, James Rajotte]

Okay. There are two minutes, so we will go to Mr. Wrobel and then Mr. Kelly.

[Marion Wrobel]

I just have a couple of things. First of all, when it comes to the CPP, as with any other pension or savings plan, the amount that you get out of it at the end of the day depends on what you earn and the risks that you take. The investment that a PRPP would make is exactly the same kind of investment you would make in a company pension plan, or in the CPP, or in the public service pension plan. They invest in the market. They are subject to the same kinds of risks. While the PRPP is not a defined benefit plan, it's a defined contribution plan. Essentially, the investment risks are the same.

Now, in terms of screwing it up—

[Scott Brison, Liberal, Kings—Hants, NS]

The CPP is a defined benefit.

[Marion Wrobel]

It's a defined benefit—

[Scott Brison, Liberal, Kings—Hants, NS]

This is a voluntary supplemental scheme.

[Marion Wrobel]

--but it is invested in the market. Ultimately, the ability to deliver on those benefits will be dependent on the return that it earns.

[Scott Brison, Liberal, Kings—Hants, NS]

As such, the returns would be reduced potentially over time.

[Marion Wrobel]

Right.

[Scott Brison, Liberal, Kings—Hants, NS]

That's part of the insurance.

[Marion Wrobel]

If it does very badly over a long period of time, something will have to give with respect to the benefits.

The other risk that the Canada Pension Plan has that the PRPP does not have is a demographic risk. If you look now in Quebec, they are looking to increase the premiums on the Quebec Pension Plan without increasing benefits, simply because of the demographic changes in the province. PRPP does not have—

[The Chair, Conservative, James Rajotte]

Okay. Let's let Mr. Kelly respond.

[Daniel Kelly]

I just have a couple of quick points on this.

First, we like your idea very much, Mr. Brison. Our members do—77% of our members favour the option of a voluntary add-on to the CPP. We like that proposal. It certainly fits the two criteria that we've set, voluntary and low cost. Those are positive things.

The second point is on the CPP itself. We have to remember that while the lower-income Canadians are an important target group, it is actually not that group we need to worry about the most with respect to pensions. The government pension stream—the benefits through OAS and GIS—do help. Those who are retiring from low-income positions are actually not much worse off than they were under any other system. It is that middle-income-earner category who is most at risk and on whom we need to concentrate right now.

We do favour your option.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, witnesses, for being here today. It's an interesting debate.

I guess there are two sides to every story here. One thing that makes me wonder a bit is that when we look at the PRPP, you're going to have a choice of different funds you can contribute to, yet we have one side of the argument saying we should put everything into one fund, being Canada Pension Plan, CPP.

I'll start off with you, Mr. Kelly, and then I'll go to Mr. Wrobel.

Don't you see that if we were to put it all into one fund, there's potential risk down the road if CPP isn't performing as well as it is now?

I'd also remind my NDP colleagues that a couple of years ago they thought the fund managers were getting paid way too much. They were all upset about the bonuses and everything else that these guys were getting, and all of a sudden they're saying let's put all the eggs in that basket.

I'll look to that from you, Mr. Kelly, to start off, and then Mr. Wrobel.

[Daniel Kelly]

Actually, this is a very important point. The CPP investment managers are not magicians.

The point that Marion raised earlier is an important one. It wasn't that long ago that employers and employees had to ante up a whole bunch more money into the CPP because the investments were terrible. We had no money to keep the plan going. It was a very important decision that the Liberal government of the day made to jack up the premiums. Our members, small businesses, actually supported a premium increase in the Canada Pension Plan because they felt the CPP was so important at that time.

But do they support an increase at this point for further benefits in a mandatory fashion? Not at all. That's why the voluntary add-on is a good idea. We think the PRPP tool is a very good one and can add to the mix. It's not going to be a panacea, by any stretch of the imagination, but I agree with you that ensuring there's a diversified range of investments on the part of small business owners across Canada and for their employees is important.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. Wrobel.

[Marion Wrobel]

I agree exactly with what Dan said. I think it's important that through the PRPP there will be competition in the marketplace. There will be options that SMEs can have. If they find one that is not performing well, they can move to another one.

Again, I said earlier that we deliver a wide range of products to Canadians. Many of them are very low-cost savings vehicles, and I think at the end of the day they can compete very well with the kinds of options or prices associated with the CPP.

The PRPP will be a fairly straightforward and simple product. There will not be a wide range of choice, and that's one of the elements that will keep costs low.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. Kelly, you said the banking sector could screw this up if they made this into...I think you said a cash cow. Is there anything as legislators that we can do to keep that competition in place to ensure we keep these costs as low as we need to keep them?