Finance Committee on Nov. 9th, 2017

[Chandra Pasma]

Of course not. I don't know who was consulted. Obviously, the range of practices that are represented in the bill is very limited. The rest will be seen in the regulations, and we hope there will be consultations around the regulations too in terms of what practices make it in.

Our larger concern is actually around the documentation of the status of “aboriginal”, which is highly contentious. I would hope that whatever consultations have taken place and whatever consultations take place in the future are very broad, because that's one of the most contested issues. It tends to be women in particular who have been excluded from having their indigenous status recognized. Therefore, they have greater difficulty claiming their indigenous rights.

We don't want to see employers being put in the position of deciding whether or not someone is indigenous if they don't have Indian status, for instance, or if they are Métis, whether or not if they can prove they meet the criteria for being Métis.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you. That clarification is important.

Both the CLC and CUPE spoke about this, so to whoever wants to jump in, that's fine.

In terms of the documentation for, let's say, an issue of family violence, Mr. Dusseault's questions were around documentation after the fact. I appreciate that you have both said that after the fact is certainly better than before.

When officials appeared, again these types of questions were raised. The response from the officials was that the intention—and I'm paraphrasing—of these changes was to ensure that those victims or their direct family members could quickly access work flexibility. The idea was that if there were a longer-term or larger issue, those types of things could be dealt with by the employer. The intention, however, is that this would provide quick access to time off, either to seek medical attention or for mental health reasons or for other things of that type. That's really the intention.

With that said, and with the documentation coming after the fact—I hear the concerns about documentation—can you see why quickly accessing that flexibility is the important aspect here?

[Hassan Yussuff]

The Canada Labour Code coverage is broad across the country. Not every employer has the same experience or will have the same understanding as to the intent of the law. I think the government will have to provide some very cohesive guidelines that would ensure that we have continuity of application across the country. Whether you live in B.C. or in Ontario, you could have the same employer, yet the interpretation may not have been communicated to you internally.

Quite often workers are dealing with their front-line supervisors and may have to engage with them in regard to their needs. I think it's critical in some industrial workplaces that there is also sensitivity to the fact that you're talking to somebody about an issue that you may not want to share with them.

Clearly this is something that we're going to have to work on. I'm not suggesting that employers are not co-operative or supportive, but I think we're going to have to work in a very intensive way to ensure that the intent and the application actually cover the same ground. More importantly, we must ensure that people don't have to be put in situations that are not tolerable or expected, in instances where they need both support and time off as quickly as possible.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Go ahead, Mr. Albas.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

I would like to start with PMAC. Thank you for your presentation here today.

I certainly understand the importance, and I think things like target date funds are a really welcome innovation. Getting people to simply put money away for retirement in a balanced risk approach, based on their age, I think is a very smart strategy.

However, like any proposition, there are always going to be additional costs, and people might be critical. I think it is important to always listen to many different voices. If a prospectus-exempt pooled fund decided to start out with a particular asset allocation, why should we allow them to merge with these other ones and not pay their taxes at that point? Why throw in these exemptions?

What would you say to someone who raised that point?

[Eric Adelson]

I would take a step back and say that with prospectus mutual funds, you are allowed to do that, and the tax code has provided for that for a long time. I would turn it around and ask why we would distinguish from one vehicle to the other. If it's good enough for one, it's good enough for the other.

That question raises a whole host of other issues that PMAC has views on as well, which we'll raise in due course.

The pooled fund itself, first of all, comes more cheaply to the insurance companies, so they are able to charge less to the end investor, which obviously is desirable for retirement savings. It increases the amount you have at the end of the day.

When you have a merger, typically you have to have a unitholder vote to approve it, especially when there are real differences among the funds. Therefore, if you had a target date fund, which has a very specific investment objective, and it would merge into, say, a Canadian equity fund, if it were a mutual fund, you'd be guaranteed to have an investor vote, because the investment objectives are radically different.

In seg funds you don't have the same rules, but you do have what they call “free exit” in that situation, so if investors don't like the merger proposal, they can always redeem out of the fund.

One of the reasons we often propose fund mergers, as opposed to just terminating the fund, is if we terminate the fund or if you redeem your money, it's the same tax consequence. The one shot you have to defer the tax is if you have a fund merger.

Offering a fund merger as a possibility gives the investor control of their destiny. They have the widest array of choices. If they decide they want to trigger their tax now, they'll vote against it or just withdraw their money. They can also just defer it and see how this new investment does.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

You have talked about the target date funds, but can you give us another example of where it started with one situation and...?

I don't disagree that we should be somewhat agnostic. We don't want to treat two classes differently when they both have the same focus, but the rules are the rules, and they were designed that way. I think people need to understand what would create a situation whereby the government should exempt them.

[Eric Adelson]

Okay. Effectively, an investor in a fund product pays two levels of expenses: management fees and operating expenses. Typically, though it's changing a bit these days, the operating expenses the fund manager will charge are costed back to the fund.

You've heard the expression “management expense ratio”. Let's say your management expense ratio was 2.14%; then 2% is usually the management fee, and the 0.14% are these operating expenses. We try very hard to lower that 0.14 on a regular basis.

The idea in a merger.... Let's say we had started a fund. It might be performing well, but for whatever reason, investors haven't been interested in it. Because there are a lot of fixed costs to running a fund, if you have a small investor base, you can't really disburse them across a wide number of investors, so the expense ratio tends to go up.

Very often you'll see mergers being proposed even on successful funds when the expense ratio is not high, because it's not really a good deal for investors anymore. They might still be making money, but it's very inefficient because of all those expenses, so you might want to merge two mandates to try to pool the cost and lower those expenses and deal with it that way. It's typically about efficiency.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

If this request doesn't go forward, what does that mean? Does it just mean that more people will simply choose not to open up these prospectus-exempt pooled funds?

[Eric Adelson]

There's a concern that if it doesn't go forward, as people get the tax hit, they'll find it a less than desirable vehicle, and the problem is that people will either try to manage their own portfolios without having the expertise, which will likely result in less savings for retirement, or they might not invest at all. They might invest in GICs, and you can't really retire off the rate of return you get today on a GIC. It might dissuade people from using target date funds, even though around the world that's becoming the default investment option of choice for people saving for retirement.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there.

From your perspective, would this be an issue of fairness in taxation? That's the word that seems to be flying around here these days.

[Eric Adelson]

Yes, I think it is a question of fairness. It's a question of the investor being treated the same way, regardless of the vehicle, given what they're trying to achieve, which is retirement savings.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, everybody, and good afternoon.

Quickly, first to Mr. Lee, immigration is important, and we know the demographics of the country. It's one of our biggest headwinds. Every economist from left, right, and centre agrees with that. It's great to see that our government has announced our immigration targets for the next couple of years, and we're increasing those targets. That's something that will offset some, though not all, of the pressures. We do know that StatsCan reported at the beginning of the year that there are now more people 65 years of age and older than there are folks younger than 15.

You mentioned two things about changes with regard to the year you can take CPP. Can you outline two of the measures that you would put in place with regard to providing workers with flexibility when they retire?

[Dr. Ian Lee]

I think you're referring to the reference I made to the chief actuary, Fred Vettese, and—

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Yes.

[Dr. Ian Lee]

—the contradictions in our pension policy—he called it incoherent—in Canada, because our existing policy contemplates three completely different retirement ages. Is that what you're referring to?

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Could you just outline the policy without getting into the background, please?

[Dr. Ian Lee]

Okay, sorry.

CPP offers a range between 60 and 70 years of age under the recent changes, which were prudent. If you go below 65, you're penalized. If you go between 65 and 70—and a lot of Canadians still don't know this—you can push up your CPP by about 42% by pushing back the drawdown.

With OAS, we take it at 65, and that's it. With company pension plans, under the Income Tax Act, you can go as early as 55.

What I was suggesting was that maybe we should look at—you, I should say, you, the members of Parliament, the finance committee—recommendations to standardize one model, the CPP model, which offers a range between 60 and 70. It allows flexibility. You can choose to go before 65, but you're penalized. If you decide to push it back, you can enhance your pension. That seems to be a more reasonable and prudent policy than the arbitrary OAS age of 65 or the often insolvent private employer pension plan.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Lee.

To the Canadian Labour Congress, Mr. Yussuff, welcome.

With regard to some of the changes we've made to the labour code to provide workers with flexibility, how important is it to your members, members of other unions, and other employees to have this flexibility for events in their lives that they may have to deal with? We may not want to talk about them and we may not talk about it on a daily basis, but just how important are some of these changes to the labour code and the measures that we put in place for workers out there today?

[Hassan Yussuff]

I think that the changes that have been put forward are welcome. As you know, the section of the code that many of these provisions come from is part III, which is outdated by about 60 years. The Arthurs report was submitted quite some time ago, over a decade ago.

Arthurs had reviewed and made some significant recommendations about how to upgrade part III of the code. While this is only part of those recommendations, and I think we have a long way to go, this is certainly going to deal with the variety of challenges facing individuals from different communities in the workforce, at the same time recognizing that we can do different things in the code to help individuals meet their needs, and I think it's a good step in the right direction.

My colleagues from CUPE have put forward some suggestions on how we can improve these provisions, but I think they are welcome, because it has been long overdue. In the absence of having these provisions in the code, most workers, to a large extent, couldn't exercise these rights even if they wanted to, because there was no legal context for them to even ask their employers to give them that. If workers were fortunate enough to have employers willing to do it, it was an arrangement that was made by themselves, unless it was in their collective agreements.

I certainly welcome most of the recommendations, but the Harry Arthurs report was much more comprehensive, and I hope you'll get to that sometime in the new year.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Yussuff, and again welcome.

My colleague, Mr. Grewal, has asked a bunch of questions to the folks at the Portfolio Management Association of Canada. I would appreciate taking this conversation further in another venue or another situation, just because there seems to be a lot to wrap my head around in terms of the tax treatment on pooled versus segregated funds and so forth. I do want to make that comment.

To the MS Society of Canada, my understanding is that the incidence of MS in Canada is the highest in the entire world.

[Benjamin Davis]

That is correct. Canada has the highest rates of MS in the world.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

How do we ensure folks who have this—we can use the word “debilitating”—condition are able to remain in the labour force and remain productive individuals? How are we doing on that front?

[Benjamin Davis]

There's work to be done, as I mentioned earlier, in terms of the binary switch challenge. When people who have an episodic illness can't work, they need support, but when they are able to work, they should be able to work and make an impact.

For those who are unable to work at all, we have feedback around the disability tax credit as well. We think it should be refundable. We think someone with MS shouldn't have to check a box every year that says they still have MS, because it's Canada's disease. We don't know the cause and we don't have the cure yet.