Finance Committee on Feb. 28th, 2012

[Daniel Kelly]

It's an important point. I think the best thing governments can do is to increase disclosure. If we had very simple ways to disclose management fees so those who struggle to understand the behind-the-scenes machinations can see at a glance the fees they are paying, that would be an important measure.

Capping fees is always a worry. You know, the adage is true that you get what you pay for. Sometimes a higher fee is justified if you're getting better investment advice and your returns are greater.

[The Chair, Conservative, James Rajotte]

Mr. Hoback, you've got about one and a half minutes. You have a couple more people who want to comment.

[Randy Hoback, Conservative, Prince Albert, SK]

I think I'll take the comments from there.

[The Chair, Conservative, James Rajotte]

Mr. Frazer and Mr. Turnbull.

Please go ahead.

[Mitch Frazer]

With regard to your question in terms of what government can do, although capping fees is really the last in the list of alternatives, it still is there. Assuming the legislation passes and you've got PRPPs and the costs start to rise, that will obviously be a disincentive for people to participate in it. It may be a tool that the government needs to use by regulation, and define what “low cost” means in the legislation.

Obviously the first goal is to let the market work itself out, but it certainly is a weapon the government has to protect the strength of the PRPP legislation.

[The Chair, Conservative, James Rajotte]

Mr. Turnbull, about 30 seconds, please.

[Dr. Jeffrey Turnbull]

One other option would be to allow large associations to take control and manage some of those funds. They're directly accountable to their members. If they screw up, they are directly responsible and they'll pay for it.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Hoback.

We'll go to Mr. Chisholm, please.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Thank you.

This discussion about the CPP and QPP is interesting. I would say its value lies in the fact that it is a single fund. That keeps down the cost of managing and investing that money. Because of the size and the scope, the investment strategies are sufficiently balanced to ensure that the risk is minimized and yet return is maximized.

With that risk ratio taken into account, it's also the case that the risk is shared among the contributors as well as government. On the other side, our primary concerns with this strategy are that it's a bunch of smaller savings plans and they get bigger from time to time and there's no control over the costs. Some people think that maybe competition will do it, keep those fees under control, but who knows? And the risk is going to be borne solely by the employees.

So those ultimately are some of our concerns. I wanted to respond to that, but I also wanted to ask the CFIB a couple of questions.

I come from a small-business background. I'm from rural Nova Scotia. My family and the people I love and the people I live around are all small-business people. What's important to them is that the people in their community have money to spend, to buy insurance, to buy homes, to buy stuff at the corner store. For example, it's important that we look for strategies for retirement income that ensure that people are able to save in the most effective and efficient ways with some sense of guarantee, taking the risk out of it as much as possible.

Mr. Kelly, if we continually look for strategies that simply take out the cost and shift the burden onto those individuals, my concern is that for those small businesses I'm close to, my family and the people in my community, we're going to have a problem with disposable income in our communities. As you said, your members are the backbone of the economy and so on, but they need people to be able to come into their stores and buy their goods. So we need to make sure there are jobs, that there is income replacement when people lose their jobs or retire. So I'm concerned with how we're going to be able to do this in a way that makes the most sense and that doesn't simply absolve your members and other members of our community of some responsibility for making sure we all participate in keeping the economy going.

[The Chair, Conservative, James Rajotte]

One minute.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

I do have a couple of specific questions with respect to your survey, but I'll make those comments and folks can respond as they will.

[The Chair, Conservative, James Rajotte]

Okay, you have about 45 seconds, Mr. Kelly.

[Daniel Kelly]

We have to worry about disposable income on both sides of the ledger: one, when you're earning and having to make the contributions to your pension, and then two, the disposable income you might have when you retire. The CLC's plan to increase the Canada Pension Plan premiums by 60% to double the benefit would mean that each Canadian would have to pay up to $1,300 a year more in CPP premiums, and each employer, for every employee at the maximum amount, would have to pay $1,300 more per year in CPP premiums.

Taking $2,600 per person out of the economy would have an immediate impact on disposable income. We absolutely need to think about the other--

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

It might be taking it out of the economy, but it's also circulating it back into the economy.

[Daniel Kelly]

It's put back in 40 years later—that's right. This is the difficult math we have to do.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Jean, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

Thank you to all the witnesses for attending today.

My first question is to Mr. Wrobel from the banking association. I know that all 53 banks in Canada have tons of accountants and forecasters and people who know what's going to happen. It's a competitive industry, but highly regulated as well. You know what's going to happen in the future in relation to the PRPP. Are the banks intending to make a lot of money off this?

[Marion Wrobel]

Can we predict the future? No.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

You certainly do it better than any other banks in the world.

[Marion Wrobel]

If we're talking about the profitability of banks, we all know what happens when a banking system is not profitable. Profitability contributes to the safety and soundness not only of the institutions but also of the industry more broadly, and it contributes positively to the economy.

I think profitability is actually a good thing, and we're not apologetic for it.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

That's—

[Marion Wrobel]

However, at the end of the day, we are only profitable when we can deliver services to our customers that they view as being valuable. We do so in a competitive environment. If a particular institution isn't doing a good job of providing services to its customers, they will go elsewhere and that institution will not be profitable. In many respects I think profitability is an indication that we are doing our jobs and doing them well. It's good for us, it's good for our customers, and I think it's good for the economy more generally.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

I understand what you're saying.

I was in business for a long time. I owned about ten different businesses, including an office supply store. At the door of that office supply store we used to have cases of photocopy paper. I can promise you that if I had sold only photocopy paper, I would have been out of business the first day. There are loss leaders because it's such a competitive industry. But some things we made a lot of money on—pens, for instance, or pencils. You make a lot of money on the little things people don't notice the prices of.

In this particular case, you’re entering into a new market that is highly competitive, that is going to offer a lot of options to a lot of folks, and where there's going to be economy of scale because a lot of people are going to be involved. I know banks make some money on some things and not a lot of money on other things. In this particular case, do you see this as a loss leader, or do you see this as a cash cow for the banking industry?

[Marion Wrobel]

I work for the trade association. I'm not a banker. It will depend very much on the institutions.

To make this product work, it has to be appealing to the institutions that are administrators—they have to make money off it. It has to be appealing to the SMEs that would participate in it, and it has to be appealing to their employees who decide, because they will have the ability to opt out. So we have three broad groups that have to find the right mix to make this work. If we do that, then at the end of the day banks will make money. This will not be a cash cow. This is going to be a low-cost product; that is the expectation, and I think it is the plan to deliver that. Not only will we have employers who will participate, but they'll get their employees to have access to a structured pension plan. We’ll offer it. I think it will help to deliver government policy to expand coverage of pensions, and I think that's a good thing.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you.

Mr. Kelly, when you were talking about the banks screwing this up, you mentioned that it will potentially lower costs. I think one of the other advantages, if I may say—and I would like you to comment on it—is the ability to spread the risk. We have a situation where CPP has been profitable, but fortunately for them they have some good actuaries and some people who know what they're doing. The reality of this new product is that it's going to spread the risk even further, which gives more credibility to a better marketplace for Canadian consumers. Would you agree with that?