Finance Committee on Feb. 28th, 2012

[Daniel Kelly]

The challenge is that there's no sum total of all the public sector pension liabilities that exist across Canada, but they are massive. For the City of Regina right now to get its public sector pension plan back on track in order for civil servants to get what they are expected to get, the contributions have to be matched at 45%—22.5% by taxpayers and 22.5% by the employees themselves.

Who of us is putting 22.5% of our salary aside for pensions? There's a quarter of a billion dollars in Regina, two hundred billion dollars in the city of Saint John, and the estimates of the unfunded liability for the main federal civil service pension range between $150 billion and $230 billion. That's just for core civil servants, not judges and others.

These are massive liabilities that we're going to need to address, and taxpayers are on the hook for those.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Does the private sector have a chance of catching up to that? Those are pretty depressing figures. Does the private sector have a chance to narrow that gap?

[Daniel Kelly]

I have to tell you, for the main civil service pension right now, for every dollar the individual worker puts in, taxpayers put in two. That's what you would need to do to give private sector Canadians the opportunity to match what the civil servants have right now. Most Canadians, 80% of our members, have nothing.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

So, Mr. Wrobel, I guess we're just hoping that the markets turn.

[The Chair, Conservative, James Rajotte]

We're pretty much out of time.

Ms. Eng wanted to comment, but you're pretty much out of time, Mr. Van Kesteren, unfortunately.

[Susan Eng]

I just want to make the point that in terms of funds that have recovered after the crash of 2008, you'll find that the large public sector pension funds have recovered the best. The CPP recovered all of its losses. The teachers' fund, OMERS—all of those have recovered better than the private funds.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Giguère, you have the floor.

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

Good afternoon to all of you. Thank you for coming here to enlighten us.

Currently, most people contribute less than 60% of their RRSP contribution room primarily for financial reasons. People have to choose between buying an RRSP or paying the rent. How will the PRPP resolve the problem? How will these people be able to have more money to invest in a PRPP when in fact they are not even able to pay their rent?

[Daniel Kelly]

The quick answer is that they won't, but they're not going to have that money, whether it's a CPP premium increase, a PRPP that is put in place, or a new rule on the RRSP. The challenge is that most Canadians—

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

Wait a moment. You just said something—

[Daniel Kelly]

—have challenges putting aside additional money.

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

I apologize for interrupting, but you have just said that the Canada Pension Plan could not do this. Unfortunately, it can, because the premium increase is spread over 10 years. I wanted to provide you with this information. You may continue.

[Daniel Kelly]

The premium increases that one would require to do the same, whether in the CPP or PRPP, would be the same: Canadians would have to dig deep and find the money or employers would have to dig deep and find the money. Unless government itself, through the personal income tax system or other means, is going to start to directly fund into a pension vehicle, I don't.... If a PRPP were mandatory, the same challenges would be there as with a CPP premium increase.

[The Chair, Conservative, James Rajotte]

Mr. Wrobel.

[Marion Wrobel]

I'd like to take you back to some of the research that we did at the CBA a couple of years ago. We looked at families who had access to an employer-sponsored pension plan and at those who did not. One of the things we found was that those who did not have access to an employer-sponsored pension plan tended to save more in other ways. They put more money into an RRSP; they put more money, potentially, into their house; they put money into their small business or their farm or into mutual funds and other forms of saving. Often they did not put enough in there to enable them to have the same level of assets as those with an employer-sponsored pension plan, but they did recognize that something was missing and that they had to react to that situation, and within their capacity they tried to do so.

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

The question is very simple. If savings are not mandatory and people do not have the financial ability to choose, if we have to force them to save so that there will be savings, what is the point in having a voluntary system when they cannot afford to make a contribution?

[Marion Wrobel]

The point is that if they don't have the financial means to contribute, so that they can't do it on a voluntary basis, then they'll have trouble doing it on an involuntary basis. What I was referring to in our research is that Canadians do make decisions. They recognize that they need to save; they recognize what options are there. The PRPP provides them with another option that many of them do not now have, and for many of them that might just be a preferred tool to enable them to have a structured pension plan, to have savings that are locked in for retirement, and low-cost options.

[The Chair, Conservative, James Rajotte]

Mr. Kelly.

[Daniel Kelly]

I'll make one other very brief point.

One of the tools through which the PRPP will help, compared with the other options that exist today, is that the government has also proposed that under the Income Tax Act, PRPP contributions be exempt for an employer from payroll taxes. Right now, if an employer puts money into a group RRSP, he or she pays about 25% more than that because they have to pay the payroll taxes—CPP, EI, workers' compensation rates—on top of the contribution. With the PRPP, the contribution will be exempt. That will reduce the cost for small employers to put money into a PRPP. The money will go actually into the benefit, as opposed to being paid out in taxes to governments.

That is one way in which it will be more affordable and will expand coverage, we think.

[The Chair, Conservative, James Rajotte]

You have 30 seconds remaining.

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

Is there any study somewhere that says that the administration costs, the management costs, are going to be reasonable?

I have often been told that these costs will be reasonable because there will be competition, but I am a doubting Thomas. I would like to be able to touch, read a study that says that the management costs will be low.

[The Chair, Conservative, James Rajotte]

Go ahead, Ms. Eng.

[Susan Eng]

On the issue of management costs, there was quite a lot of study in Ontario by the expert panel. When they were looking at the publicly managed funds, such as the CPP, OMERS, or more recently the teachers' fund, they found that they had very low costs, and on top of that, they did not have a profit layer.

While it is true that all investment management executives will probably charge the same, whether they're working for a private plan or a public plan, that extra profit level is something that's going to add to the cost, ultimately, and it will erode your savings.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Gourde, you have five minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you very much, Mr. Chair.

My first question is for Mr. Dubreuil of the Regroupement des jeunes chambres de commerce du Québec.

You said earlier that you had surveyed your members. In this survey, did you ask how many people were prepared to invest in a pension plan? Given that you are all young, small and medium-size businesses and self-employed workers do not necessarily have other options. If you did ask them this question, what amount or what percentage of their income, gross or net, were they prepared to set aside?