Finance Committee on March 1st, 2012

[Chris Roberts]

Yes. I just don't think there's any evidence that it's likely to have that impact. The last time that CPP contributions were increased substantially—65% between 1997 and 2003—the unemployment rate fell steadily and continued to fall for another five years after that. What we're talking about is a modest expansion, a modest increase in contributions, phased in gradually. And even if we wanted to set parameters around when the recovery was strong enough to trigger those improvements to the CPP, that's perfectly doable. But the trick is to define it now so that we don't have to wait and wait and keep pushing it off.

[Kevin Skerrett]

To add to that answer, you connected that question about CPP costs with the way employers try to handle pension costs as part of total compensation. It is worth registering the point that when workplace pension costs go up, in the current arrangement, employers understandably take account of that when they're also then discussing with unions or workers about current wage levels. In other words, the pension costs go up; current wage increases are reduced, in effect, most often. I would suggest that employers would similarly take account of proposed increases in CPP contribution rates when they assess their ability to pay overall compensation, whether it's benefits costs, wage costs, or whatever.

It's important to recognize—I tried to make the point in my statement—that as in 1966, when CPP was introduced in the first place, an additional expansion of CPP, we think, is very likely to result in changing the room for reducing workplace pension costs for those employers who have those plans.

I'm prepared to acknowledge that some of those plans have been shown to have cost volatility. Employer costs are spiking in a way that the CPP cost never does. It would be understandable if an employer would recognize CPP expansion as an opportunity to say, “Maybe that makes more sense. It's less risky, less costly.” That could be an advantage for a lot of employers.

[The Chair, Conservative, James Rajotte]

Mr. Benson.

[Phil Benson]

I'm probably one of the few people around the table who is actually dealing with the CPP increases. Those stories came out that it was going to devastate the employment, and it just didn't happen. The truth of the matter...modest CPP increases over a period of time.... The real message to workers is, you'll be getting fewer wage increases, but the CPP, of course, is a secure DB benefit, which is preferred.

We're dealing today, again, with PRPP, and it is a really good solution for a lot of Canadians.

[The Chair, Conservative, James Rajotte]

Okay. Unfortunately, this round is up. I'm sure we'll come back to you, Mr. Roberts.

We'll go to Ms. McLeod, please.

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

Thank you, Mr. Chair. I'm hoping to get in a whole bunch of questions, so if I could get brief responses, that would be great. I know it's a complicated subject for brief responses.

My first question is to Mr. Lizée. You indicated concerns about the employer getting to choose. The employee can obviously opt out. To me, that sort of takes care of that particular issue. Obviously, if the employer is going to be contributing also, then the employee would be less likely to opt out. Does that not soothe that concern at all, that the employee has a choice to opt out, and of course may stick with the other arrangements they have?

[Michel Lizée]

Thank you for your question, Madam. I will be quick.

For the past 10 years, Quebec has had regulations on simplified pension plans, which are a mechanism for the pooling of funds, similar to registered pension plans. But, in this case, employers pay for half of the contribution. So it is legitimate for them to do so.

The PRPP paradox is that the employer, who does not put a cent into it, can choose the financial institution. So we can assume that the bank that already provides the line of credit has an unfair advantage. So we have to find a way for employees to make their voices heard.

Of course, every employee can opt out, but that goes against the initial objective of the legislation, which is to increase the actual savings rate for people. People have to be convinced that the financial institution was selected based on efficiency and cost, and that it is the best choice in terms of savings. This aspect of the bill is weak, especially since the regulations allow for incentives even though they seem not to. So there might be a conflict of interest. That is what should be defined.

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

Thank you.

My next question would perhaps go to Mr. Laporte. I know that the Liberal Party is very keen on this voluntary increase to the Canada Pension Plan. Of course, the Canada Pension Plan is structured in such a way that it's compulsory. You did indicate your concern about the locked-in funds of this. Obviously, CPP is locked in. RRSPs are not. The fact that a PRPP is locked in...I wish I had something locked in way back.

Anyway, to go back to your comments in terms of the CPP, one of the things is if you had this voluntary system, it would completely change the structure of the Canada Pension Plan. Obviously, it would then increase administrative costs. Do you not agree with that?

[Jean-Pierre Laporte]

No, I don't. I've actually spoken with the leadership of the CPPIB. They said it would not increase the administration costs, first of all. It's actually kind of ironic, because with the introduction of the post-retirement benefit for people who are aged 65 and older, there is now a voluntary component to the Canada Pension Plan. You don't have to contribute for that piece after age 65. The current government has proven that you can have a voluntary add-on to the CPP.

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

My understanding would be that it would be a significant...I think we need to check into that particular issue.

Also, having said that, the fact that we are moving ahead with PRPPs, which have the unanimous consent of all of the provinces, versus the CPP, which of course we do need to have consent.... It doesn't preclude at a future time continuing to revisit that issue. To suggest there might be options...but this is another tool in the basket in terms of what we are doing and where we're going.

Ms. Byrnes, I might not have a whole lot of time left, but you probably wanted to respond to Mr. Marston originally when he talked about the fact that management fees are going to be very expensive. I could see that you looked like you wanted to respond. Perhaps you could talk about how the management fees with the PRPPs....

[The Chair, Conservative, James Rajotte]

There are about 30 seconds for a response.

[Leslie Byrnes]

The first point I would make is that for the legislation, the intent is clear that it needs to be low cost. Administrators are going to be licensed. They are going to be supervised, and they are going to be held accountable to make sure they deliver on the low costs, not only by regulators but also by employers, who can vote with their feet and move over to another provider if they want to.

The other point I would make is that life insurers are already delivering on the low costs with our DC plans out there. That has been demonstrated in the government's own research. Professor Jog indicated that on average, 60 to 70 basis points is what the life insurance industry manages to deliver on pension plans.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

Your turn, Mr. Mai.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

One of our questions has to do with cost. We talk about low costs, but there is no limit, no ceiling.

Mr. Roberts, Mr. Skerrett and Mr. Lizée, you have all talked about the costs of this plan, which would be higher than if we were to invest in the Canada pension plan. Could you tell us about the difference? Perhaps we could start with you, Mr. Lizée, since you have talked about the RRSP costs compared to Canada pension plan costs.

[Michel Lizée]

Thank you for your question.

Mr. Whitehouse from the OECD has prepared a report based on the data from the Department of Finance. According to this report, which is on the department's website, the typical RRSP cost is around 2% right now. Mr. Whitehouse has concluded that, during a full life cycle, 37% of a person's savings goes to management fees. So the person is left with only 63% in savings.

We have to remember that, in Quebec, the simplified pension plan that was created 10 years ago, had the same objective, meaning to set up plans to be managed by the industry, but accessible to employers. After 10 years, we can see that the gains have been very modest. All the assets in simplified pension plans have the same scope as those in the average pension plan. It might be possible to reduce costs, but so far the rules of competition have stood in the way. In addition, the same players will administer registered pension plans. So I can't see what would motivate them to lower costs, since the regulations do not specify the criteria for a low-cost plan.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Mr. Roberts.

[Chris Roberts]

CPP has a very large scale, $150 billion in the fund, millions of members in the plan. That's the basis on which, combined with professional management, sound governance, and public administration, there is an ability to keep costs low.

With PRPPs we really don't know what we're in for. The more providers you get, the more dilution of economies of scale you're going to find. We don't know about the range of investment options that will be offered. There may be a default fund and then a whole series of other funds made available. The more choice, the higher the cost is likely to go.

There's a question about the transparency of those costs and whether they will be revealed or hidden in the process. We have a whole series of questions about the ability of the system as it's defined in the legislation to keep costs low.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Let me come back to you, Mr. Skerrett. I would like to address one of our concerns. It does not only have to do with costs, but also with the fact that the PRPP system will have a negative impact on other existing plans. Could you tell us about that? If we move forward with it, what will the impact be on the other existing plans?

[Kevin Skerrett]

That is one of our real concerns. We're currently in a period where employers who have workplace pensions, defined benefit plans, are facing difficulty. It's something they share with us, and we end up sometimes at collective bargaining tables, sometimes in other environments, trying to solve these challenges. In many cases they can be solved, but it is a challenge, and there is no secret there.

With this option hitting the table, our concern is non-union environments that still have pension arrangements. But even where there is a trade union defending employees, employers will see this as a very attractive alternative. There is no pension cost, so why not get rid of this workplace pension arrangement, replace it with a PRPP, and encourage the employee to contribute? You've succeeded in dumping all the risk and the cost on individual workers. For us, that's a real concern. This could be the first step toward destroying those workplace plans that have taken decades to build up.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Mr. Lizée, would you like to comment, in five seconds?

[Technical Difficulty—Editor]

That's unfortunate; we didn't understand, and the five seconds are already up.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll now go to Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I just want to make a couple of comments.

First, Mr. Skerrett and Mr. Benson said something that was very interesting to me, because we've been arguing in the House of Commons for quite some time—actually, probably since the election—that the recession hit us, but that it affected many countries even worse, that we've done fairly well, but that we have more to do because jobs are in fact at risk. We have created more than 610,000 jobs since the recession ended in 2009, but we have to maintain that track. We have to make sure that Canadians have jobs to pay for the things they need to pay for. Even those who have jobs are complaining that they don't have enough money to make ends meet.

I see you nodding your head yes, Mr. Skerrett, but what you said earlier was that we ought to increase CPP. In fact, the increase of CPP would lower wages of the average Canadian, which is disturbing because it's those same Canadians you just nodded your head about who are saying, “You lower my wage, I may not be able to make my payments for my home, or feed my children, or clothe my children.” Mr. Benson agreed that a rise in CPP will in fact lower wages of Canadian employees.

This government is not prepared to put jobs at risk. But even more than that, the consensus we need is not available. So I don't know why we keep coming back to the doubling of CPP or the increases of CPP, etc., when we're supposed to be talking about PRPP, because it's not going to happen—full stop. Changes to CPP are not going to happen in this environment. We are continuing the conversations with the provinces and the territories, but it's not going to happen.

So frankly, I want your advice on how we can better serve Canadians who don't have a pension plan and who don't have that option.

Coming back to that, I do have to make note that there have been some comparisons here with the Australian super fund, where again, we're comparing apples to oranges. As Ms. Byrnes rightly said, there are some differences. I'm going to put this on the table just so everyone stops comparing apples to oranges again.

Mr. Marston is smiling because he knows what I'm about to say, and he won't mention Australian funds again because he knows very well that they can't be compared to PRPPs. For example, the default option in the Australian fund has some problems, and, as a result of the problems from the default option, our plan intends to have some prescribed regulations to deal with that. Aside from that, the Australian fund is mandatory for businesses, which the PRPP is not. It is voluntary. Not only that, the Australian fund does not mandate a low cost, which will be mandated in our legislation. Under the regulations, administrators will require the licence, as Ms. Byrne said, and not only that, they will be supervised. That is very different from the Australian fund. Last but not least, inducements are going to be prohibited under this fund. Australian inducements may have led to some very terrible situations with that fund. Having said that, we won't ever have to hear about Australian super funds again because we've shown that they are not at all like the PRPP.

Ms. Byrnes, would you agree with what I have just said?

[Leslie Byrnes]

I absolutely agree that the Australian experience has been very instructive, and that there are lessons to be learned from that.

The other point I would add is the excess of choice that's in the Australian fund, and the complexity that's in it as well. There are something like 20,000 funds out there. Employees get to choose where they want their contributions to go. The employer has to remit them to possibly dozens of different funds. It's a time-consuming, complex, and expensive thing.

The other thing that happens, because of too much choice, is that you sort of get paralysis on the part of the employees. I think I've seen that something like 80% of them don't actually make a choice. And then, as you quite rightly point out, they haven't worked out the default option properly.

When you take a look at the proposal in Bill C-25 for the PRPPs, they've learned from that. You've got to keep it simple. The employer chooses the PRPP. There is a finite number of investment choices within that. There is a good default option within that, and the employer remits contributions to one PRPP. So I think it's streamlined, it's simplified, it's on the right track, and we think it makes sense.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you.

Do I still have a little bit of time?

[The Chair, Conservative, James Rajotte]

You have 10 seconds.