Finance Committee on Nov. 16th, 2016

[Susan Eng, Counsel, National Pensioners Federation]

Thank you.

Thank you, Mr. Chair and members of the committee.

I reviewed parts of the debate in the House during second reading, and there were a number of positions that I wish to address here.

One of the comments made in the debates was that voluntary savings vehicles such as RRSPs and TFSAs are adequate to enable people to save for their retirement. While this is true for the well off, with sufficient funds to invest, it is not true for middle-income families and certainly not for lower-income people. The net result cited by various researchers is that nearly a quarter of middle-income workers will sustain a substantial drop in their standard of living upon retirement because they have not, or could not, save enough.

It was also said that the CPP contribution is a payroll tax that will cause job losses. The same argument was made when the contribution rates were doubled in 1986 with no attendant increases in benefits, and there were no job losses then. There's no evidence that job losses will happen this time either.

There was a comment that employers will be paying thousands of dollars more. The absolute maximum additional contribution payable by an employer is $1,100 in today's dollars and is not payable until the increases are fully phased in, in 2025, and only in relation to a person earning approximately $82,700. To raise the fear that small businesses will be burdened with thousands of such payments is unwarranted. Average incomes are closer to $55,000, which is the YMPE today. In 2025 the annual employer contribution would be $515 a year, or $43 a month, or less than $20 per paycheque. As to the job loss argument, why would an employer terminate an employee over a $20 impact on their paycheque?

Another comment made was that low-income workers would lose their GIS benefits due to an increased CPP. Low-wage earners should absolutely participate in the increased CPP, even if their income supplements are replaced by CPP benefits, not least because of the dignity of having paid for one's own retirement. The increased WITB is a much-welcomed measure to ensure that low-wage earners can participate. If the legislators are concerned about low-income earners, they can exempt the increased CPP benefits from the GIS calculation.

Finally, it is often said that our children should not have to pay for our retirement. This concern is actually prevented by the CPP legislation: all future benefit increases must be fully funded. Each generation is funding its own retirement in relation to these increases. Furthermore, as with all large, well-managed defined benefit pension plans, contributions pay for about 20% of the benefits that are ultimately paid. The rest is funded from the investment returns.

Those are our recommendations. We'd be pleased to take your questions.

[The Chair, Liberal, Wayne Easter]

Thank you both very much.

From the Canadian Taxpayers Federation, we have Mr. Wudrick.

[Aaron Wudrick, Federal Director, Canadian Taxpayers Federation]

Thank you, Mr. Chair.

Good evening. My name is Aaron Wudrick. I am the federal director of the Canadian Taxpayers Federation. I am very pleased to appear this evening on behalf of the CTF to comment on Bill C-26, which, as we know, deals primarily with the expansion of the Canada Pension Plan.

In CTF's view, Bill C-26 is essentially a classic case of good intentions leading to some very unintended consequences, and of an attempt to solve a very specific concern by using a very blunt instrument.

Income security for seniors is, I don't think anyone will deny, a very valid and pressing public concern, but it is also important here to acknowledge that the facts do not show that there is a broad, generalized crisis when it comes to Canadian seniors' pensions. For poor seniors in particular, income supplements such as old age security and guaranteed income supplement, which have already been mentioned, largely address the issue. If concerns remain for this group as a whole that these programs are not sufficient, those are nonetheless the programs we should look to, and not CPP, to address any lingering problems. Rather, the changes in Bill C-26 are instead designed to target a relatively small group of middle-class to upper-middle-class Canadians who are not meeting an arbitrary threshold set by the government as to what an adequate amount of retirement savings should be. Most importantly, in calculating this, the threshold does not consider, for example, non-RRSP investments, nor things such as equity in people's homes. Rather, the government has declared that this threshold isn't met. As a result, they have chosen a sweeping, one-size-fits-all solution to effectively force—not help, but force—all Canadians to save more money.

Now, some people will probably react by saying, “What is so bad about governments forcing Canadians to save more money?” It does raise a number of important questions, such as why exactly the government feels that it is better placed than individual Canadians and their families—who I think we can all agree have a vast range of lifestyle preferences—to know what the right amount of savings is. It is entirely possible that there are some people who would prefer to spend more money today. I think an obvious example is people with young children or large families who require money today and want to spend that money today in anticipation of, perhaps, a more frugal lifestyle once the kids have grown up and moved out.

Then there is, of course, the question where, if some people are not saving because they simply cannot afford to save, how is depriving them of that money today—even if they are potentially going to get it down the road—going to make them better off overall?

It is also important to stress here that, when we are discussing income security for seniors, income support is often conflated with income replacement. CPP, of course, is a program where the yield you receive depends on what you pay in. Enhancing it, therefore, does nothing for people who are not paying very much into it in the first place. It does not give people extra money. It simply shifts the money from the current day into the future.

Finally, and very briefly, I think it is still worth noting that its expansion could be very damaging to businesses insofar as it effectively functions as a payroll tax. It is possible—I believe news came out today of a government memo that stresses exactly this point—that the CPP expansion could lead, certainly in the short and medium term, to lower wages and fewer hours for workers, as businesses attempt to compensate for the new costs.

I think I will leave it at that. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Wudrick.

We now turn to Mr. Cross with the Macdonald-Laurier Institute. Welcome.

[Philip Cross, Senior Fellow, Macdonald-Laurier Institute]

Thank you.

First I'd like to thank the committee for inviting me to speak, especially on an issue as important as the plan to expand the contributions and benefits of the CPP.

Previous changes to the CPP were based on clear evidence that changes were necessary. Prior to the introduction of the CPP in 1966, 44% of seniors lived in poverty, clearly unprepared for what was a new phenomenon of living a substantial portion of one's life after leaving work. The reform of the late 1990s was based on the actuarial fact that a “pay as you go”, or PAYGO, system for a rapidly aging population meant unbearably large and fast increases in contribution rates for younger workers. Instead, contribution rates were hiked immediately, and the surplus funds were invested in the newly created CPP investment board as the CPP transitioned to a modified PAYGO scheme.

Unfortunately, the proposed reform package of the CPP is not grounded in current experience and facts. Looking at both the living standards of retirees and the financial soundness of the CPP, one can only conclude that there is no actual or impending crisis. Instead we are being sold on the proposition that Canadians are not saving enough, despite the immense amounts of wealth they are squirrelling away in a variety of assets, nor are most low-income Canadians being left behind in their retirement. The combination of OAS and GIS guarantees that few will fall below the poverty line. One exception is elderly women who have never worked.

Instead we have an imaginary crisis, mostly for the middle- and upper-middle-lass workers who hold many financial and housing assets. The hypothetical crisis is based on forecasts decades into the future that implicitly make assumptions about everything from when older people leave the labour force to how much income they earn, the assets they hold, the return on these assets, what future inflation will be, and even how medical technology will change life expectancy. The future evolution of any and all of these variables is inherently unknowable, and the uncertainty surrounding attempts to forecast them has not been openly acknowledged by their proponents.

As a result, they have convinced themselves that the future is predictable, even after it was made strikingly clear in 2008 that economists and financial analysts could not predict the global financial crisis that was just around the corner and the lingering impact that crisis would have on growth. The myth of a possible drop in living standards of retirees is openly encouraged by the financial industry, which stands to profit from both an increased supply of savings and higher demand for its lucrative financial counselling services.

What we do know for certain is that the Canadian economy is in its most prolonged period of slow growth since the early 1990s. When CPP contributions were introduced in 1966 and increased in 1997, the economy was booming, which made the reduction of household disposable income growth manageable. In the current circumstances of weak growth and with the U.S. poised to reduce its tax burden, imposing another tax hike on Canadian households will only further dampen growth.

Let us dispense with the argument that CPP contributions represent a form of saving and not a tax. Your CPP contribution is not saved as an investment in an account set aside for you like your RRSP. Since the CPP is primarily a PAYGO system, your contributions today are going to pay the pensions of today's retirees. Your future pension is based on the assumption that younger workers will be willing to pay CPP contributions for your retirement. If future generations decide that it's too much of a burden, which is possible given the tax hikes they'll be paying to meet other demands of an aging population, such as health care, you will quickly discover that there is no savings account with your name on it.

To the degree that higher contributions are offset by lower savings elsewhere—StatCan estimates the offset is about 50%—then the vulnerability of future retirees to an arbitrary change in their pensions is increased.

The debate over CPP reform detracts attention from the real problem at the heart of the pension system today, which is the imbalance between the public and private sectors. Currently one third of the workforce in the public sector has two-thirds of trusteed pension plan assets, and even that is not enough to pay its generous benefits. Instead, the public service will be looking to the private sector, which has two-thirds of Canada's workers but only one third of pension plan assets, to subsidize its pensions. The current level of benefits in the public sector is unsustainable, and it is unrealistic and unfair to ask private sector workers to pay even more as private sector pension benefits lag.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Cross.

Turning to questions, we have time for one question from each party—about three minutes, no more.

We'll hear from Mr. Ouellette, Mr. Deltell, and Mr. Duvall.

Mr. Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Mr. Chair.

To each and every one of you, I really appreciate your coming here today. I also appreciate your understanding of how Parliament works sometimes and why we had to delay your testifying.

I was reading your Macdonald-Laurier testimony here, and I have to say that I disagree on a certain level. My grandmother makes $18,000 a year in retirement. She's 88 years old and she's pretty well at the poverty line, if not below. I think there's something to be said for people who have worked their entire lives. I know my grandmother has worked, maybe not at jobs that paid a lot, but she certainly did work. I think as a government we have to sometimes look to the long-term future to find ways of making pensions sustainable. For instance, in Canada only 38.4% of pensions today, or at least in 2004, were actually registered pension plans in private hands.

I was also reading the Hansard from back when we put the CPP in place, and many of the same arguments—for instance, by the Canadian Taxpayers Federation, and many of your comments—were the exact same comments they were making back then: that it's not something we need. Yet we know that 44% of seniors lived in poverty, according to the Macdonald-Laurier Institute.

I have a general question for all of you.

[The Chair, Liberal, Wayne Easter]

You'll want to give them time to answer, though. At three minutes we're cutting speakers off, so you'll want to get to the question.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Okay.

When you see all these provincial governments and the federal government coming together in an agreement, for me there must be something there. If all these governments across Canada were able to sit down and come to some form of agreement, there must be something behind the drive towards allowing Canadians to save for the long-term future.

I guess we could go very quickly and get people's comments.

[The Chair, Liberal, Wayne Easter]

Do you have a couple of comments? Who wants to start?

Ms. Eng, and perhaps one other.

[Susan Eng]

Thank you.

The one thing I think we have to remember around this table is that the amount each individual is being asked to contribute, both employer and employee, is a very modest amount. The reason it can be modest is that everybody has to do it. The workforce is 17 million people. When you have contributions from nearly all of them, you can afford to increase the ultimate retirement benefit, and that's why it needs to be done.

We have to make clear that the amount per person is very small. The amount per employer is still modest in relation to the benefit. When we look at what we're trying to do here, it's to be part of a large, well-managed fund. It doesn't replace every other thing you might still have to do, but the CPP and its maturing since 1966 actually lifted an entire generation of seniors out of poverty and directly replaced taxpayer dollars that had to be spent on GIS; there was an exact match.

That work is done now, and in order to prevent further poverty, this enhancement has to take place.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Deltell.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chair.

Welcome, lady, gentlemen, to this parliamentary committee. I am really sorry about the complications you had to deal with.

My question is for Mr. Dorval.

You have highlighted some of the realities that directly affect entrepreneurs, such as the increases they are going to face over the coming years. There is also the fact that it will take 40 years before we see any concrete results.

Property is one avenue to a good pension fund. However, if access to property is restricted, as the government proposed in its October 3 announcement, this may put a damper on things.

One aspect has not been mentioned yet, and that is the age of retirement. When the pension fund was put in place 50 years ago, life expectancy was much shorter than it is today.

Our government proposed and implemented setting retirement at 67. Now, we are taking a step backwards and the retirement age is being set at 65 again. In your opinion, what impact could this change have on the process we are studying today?

[Yves-Thomas Dorval]

Thank you, Mr. Chair.

In most other countries of the world, the intent is to delay the age at which one can fully benefit from retirement advantages. It isn't complicated. The fact that people live longer means that today people are going, for the most part, to live longer after work than during their work lives. There are also the living conditions that extend life expectancy, and mean that people are in better shape and can work longer.

If we wanted to improve things, we would also have to look at the age of retirement, as the previous government did. The current government has brought the age of retirement back to 65. Honestly, I would say that the global tendency is to increase that age and not to lower it. Perhaps we could have gone halfway and indexed each year according to mortality statistics. If we had begun to do that in 2007 as they did in Sweden, we would already be on our way. It would have been better than changing things abruptly. It's very difficult to change that.

In addition, the population is aging, which means it is difficult to find available workers. The more we encourage people to leave the labour market early, the harder it gets. In Quebec, for instance, we made extraordinary efforts to increase the rate of participation of women in the labour force, by introducing various programs. This was successful, because today the rate of participation of women in the workforce is much higher.

When you look at the current demographic picture, you see that it's difficult to reach the same rate of participation in the workplace for people of more than 45 years of age. Of course this is not only due to individuals and to retirement projects. Employers must also make efforts. In any case, this is a factor we need to pay greater attention to when considering how to improve the plan.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Duvall, you're on.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you.

Thanks very much, people, for coming in today. We really appreciate it.

To Ms. Eng or Mr. John, was your organization consulted in any way about the changes to the Canada Pension Plan? We've discovered that the government either forgot or decided not to include the child-rearing and disability drop-outs in the enhancement. I'd like your comments on that. Would this reduce payments or affect more women or people with disabilities?

[Susan Eng]

The drop-out provisions are really an important part of the basic plan at this time. Our understanding, of course, is that with the enhancement, those drop-out provisions were left out. They are still important, because if we're going to increase the benefits for everyone, especially those who need it the most, then the drop-out provisions are needed for the enhancement as well as for the basic plan.

My understanding of the legislation, however, is that the enhancement has to be fully funded, in which case the cost of folding that in is going to be measurably higher. Nonetheless, we would support adding in the drop-out provisions to the enhancement as well.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Is that it?

[Scott Duvall, NDP, Hamilton Mountain, ON]

Do I have more time?

[The Chair, Liberal, Wayne Easter]

You have about 35 seconds.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Okay.

Just to go further on the costs for the enhancement, we understand that the cost to include that will be very, very minimal. Can you comment on that, if you've done an actuarial study?

[Susan Eng]

It depends how far you go with the drop-outs. If you have the regular seven-year drop-out, which we have in the basic plan, that's one part of it and it goes across the board. If you start adding it for child-rearing, that's another seven years. For people with disabilities, that could be an expanded portion.

I'm not in a position to say how much that would be; I just know that it would be more.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Does anybody have one quick point they want to add?

Ms. Schirle, I know you sat there for two and a half hours. Is there one quick point you want to add as a conclusion?