Status of Women Committee on Oct. 27th, 2009

[Joel Harden]

I'm speaking as a young person who came at the CPP debate in graduate school, when we were told in the 1990s it would go broke and we needed to turn it into a group RRSP so it would be fairer for my generation. What the actuarial studies indicate now, and what Mr. Dussault worked on in the 1990s and tried to convince the government of the day about, and what we're seeing today is that the Canada Pension Plan in its current funding system--roughly 5% of salary for each side, employee and employer--is funded well until retirement surges in the population and then it ebbs away. The high water mark is 2050, and then it falls off after that; the demographics change. The Canada Pension Plan is fully sustainable until 2085. That's what--

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

But if we're going to increase the benefits.... Are you an advocate of increasing the benefits?

[Joel Harden]

Three percent per side is what we're proposing, a seven-year phased increase.

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

You feel the employer....

Okay. What about CARP?

[Barbara Byers]

On page 4 of our document, the first point says “financed by a modest increase in worker and employer premiums which would be fair for lower paid workers”. If you need it in writing, it's there in writing.

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

So you recognize the demand, the urgency, and you are prepared to take that?

[Joel Harden]

We worked with Mr. Dussault as well in developing our costing.

[Bernard Dussault]

The Canada Pension Plan was amended one or two years ago, to the effect that any amendment to the plan has to be, from now on...because it was not applicable before. If you improve the benefits, you have to charge the contributions that are associated with those benefits on a fully funded basis. The three or six percent he mentioned is something I provided. That was easy; I can replicate all the actual reports. They give all the figures to assess or determine how much it would cost to double the benefits, and a lot of people are surprised. They say how come the current 25% costs 9.9% and this would cost just 6%? It's because the 9.9% is not on a fully funded basis. A fully funded basis, done immediately, is less expensive.

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

That's it, Chair. I want to split my time, if I could.

[The Chair, Liberal, Hedy Fry]

You have three minutes to split with Ms. Boucher.

[Sylvie Boucher, Conservative, Beauport—Limoilou, QC]

I want to thank everyone for being here today.

As you know, this is a very interesting issue, because things are clearly changing, and we need to shift gears.

Mr. Braniff said earlier that the parliamentary secretary worked very hard over the summer to hear what people had to say, because we need to rethink our approach. Ms. Byers also told us that she used Quebec's plan as a model. True, Quebec has made strides that are working quite well there. But, we also have to consider the reality of all the other provinces and not muddle the two.

Earlier, we heard about RRSPs. Could someone tell me what percentage of Canadians have tax-assisted retirement savings through an RRSP?

[Joel Harden]

Thirty-one percent of Canadians make contributions to RRSPs, but the two untold stories about RRSPs—not to chew up too much of your time—is that a Harvard study recently showed the average RRSP administration fee, what are called MERs, bleed about 35% to 40% of an RRSP over a 40-year work career. There are massive mutual fund fees charged to RRSPs. They don't have any protection against market slumps. So when markets tank by 52%, as we've seen in the last 18 months—they've rebounded since—your RRSP tracks that. The Canada Pension Plan is the same if you retire in a slump or if you retire in a good period. It's a defined benefit, not a defined contribution RRSP.

[The Chair, Liberal, Hedy Fry]

You can have 30 seconds.

[Sylvie Boucher, Conservative, Beauport—Limoilou, QC]

Mr. Dussault wanted to answer, so he can have my 30 seconds.

[Bernard Dussault]

There is another important component to registered retirement savings plans. Not only is the percentage of people who take advantage of them fairly low, but also, a large proportion of people—and I apologize as I cannot recall the number, and I would not want to just throw one out there—withdraw from their RRSP even before they retire and do not use the money for its intended purpose, since they are not required to do so.

Attaching an obligation to a pension plan is very important. If you do not require people to save, they won't, and if they do, they will do it only temporarily, as if they had not saved anything at all.

[Sylvie Boucher, Conservative, Beauport—Limoilou, QC]

Fine. Thank you very much.

[The Chair, Liberal, Hedy Fry]

Thank you.

Ms. Mathyssen.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Thank you. I'm going to be more boisterous, Madam Chair. I know you've said that often you can't hear me.

I want to thank all of you for being here. I appreciate very much this wealth of information. I want to sort of pick up on bits and pieces of what we've heard.

From Barb and Joel we heard that 31% of Canadians ultimately make contributions to RRSPs, but over a 40-year period, 35% to 40% is lost to management fees. Of course, as you alluded to, the realities of what's going on in the economy and the stock market have further bled away the savings. Yet so many Canadians have been encouraged to top up their retirement with RRSPs. Given the current climate, obviously this isn't working.

Is it possible to convert all that money? In terms of what the government has invested in tax breaks and what Canadians have invested in terms of money that disappeared into the ether of the stock market, there must be a considerable amount of money there. If we were to invest that in the kinds of pensions that have been discussed here—public pensions, pension insurance, better GIS protection, better CPP protection—would it in fact benefit us? I know there's always this discussion that it would cost so much to do this. I'm wondering whether it really would if we were more intelligent about the investments.

[Barbara Byers]

We have to look at what the tax breaks are because of people investing in RRSPs. I believe the figure is about $18 billion provincially and federally. What's the cost to us to do it that way?

Also, we should be realizing that for people who may have made some investments in RRSPs...I'm of the understanding that for the age group 55 to 64, which is near and dear to my heart because that's where I fit, the average monthly payout for somebody with an RRSP is not an astounding amount of money. It's $250 a month. Can you imagine what would happen—Joel has already pointed it out—if we actually got real money back into people's hands through enhanced CPP and OAS? That would be an economic stimulus in our communities, and we'd have fewer worries. Again, this gets back to the point about the pension summit, because we can start to then have that discussion about what happens if we get people to convert.

For 14 years I didn't have a pension plan; I had RRSPs. Like a lot of other people, I started looking at them a year ago and watched them go down and was thinking, “Man, bring on the cat food.” I could joke about it for a while, but it wasn't funny after a while.

[Dan Braniff]

I would like to add that there are some myths. First of all, from the tone of this I get that we're worried about the cost, and I have to give you my own example. I'm 78 and I've been retired for 24 years. I can tell you that looking at the pension plans and their performance, I have performed much better than those plans, and I know a lot of people who have as well. Maybe we were just lucky, but maybe we've lived long enough to be smart.

We talk about costs and the top cost to future generations, but any advantages I might have been able to achieve through RRSPs and my pension plan have been compensated for; they've been paid back. I pay a higher rate of tax now than I ever did in my life. So the idea that you're just puffing this into the wind is a myth.

When we look at the cost, one of the questions that hasn't been asked and maybe should be answered is what about small business? How are they going to be able to afford this? I've been on the other side of the fence and know how business operates. When you get a plan introduction like we did with the CPP back in the 1960s, an adjustment is made. It's made at the bargaining table or in the negotiations people make with their employers. You trade this off. There's no question that the final cost of this will be absorbed by the total compensation. The payoff will be for companies as well because they'll have transferable benefits. They won't have the burden they seem to be complaining about these days, in spite of the fact that with the plan I have, the sponsoring company enjoyed 12 years of contribution holidays.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Thank you very much.

While we're talking about costs, I was reading through some of the Canadian Labour Congress pension material and noted the stark statement that we can't afford not to double CPP benefits, because there is a social cost to Canadians and our whole community if it remains at 25%.

You alluded to poverty, and I'm wondering if you could go that extra step. What kinds of social costs were you thinking about?

[Barbara Byers]

I think a lot of us are talking about the social determinants of health. Sometimes it's too easy to say, “Oh well, it's poverty. It's unfortunate, but it's over there.” But there's a whole bunch of interconnections as well.

My background, as some of you know, is as a social worker. I primarily worked with street kids, but I also did financial assistance for a number of years. The reality is that you see people making life and death decisions about whether to take their medicine or not and whether to live in a rat-trap place or not. But even for some people who are not right on the edge of poverty, it's a matter of some small advance, some life of dignity. If we're just here to provide a pension plan to keep people down, I don't think that's what we really want. We want to know that our parents and grandparents, and indeed ourselves, will have some sense of dignity. So it is about social determinants of health, which is a pension plan.

[The Chair, Liberal, Hedy Fry]

I'm sorry, but we've gone 30 seconds over.

We'll move into the second round and begin with Madame Zarac.

[Lise Zarac, Liberal, LaSalle—Émard, QC]

Thank you, Madam Chair.

Good afternoon and welcome.

Mr. Braniff mentioned that a pension should act as an insurance policy. Indeed, paying into a pension plan is ensuring that we will have enough to live on when we get older. But, as we have seen with Nortel, there is currently no guarantee; there really is no insurance policy.

What provisions currently exist to provide protection in case of bankruptcy?

[Dan Braniff]

The only real protection you have is the health of the company itself. I think the circumstances with Nortel, General Motors, and others have indicated this.

The concern I have is that there is a different attitude in the Canadian corporate world than there used to be. I could go on and explain this. To give an example, as a young manager with Bell Canada, one of my duties was to visit all the pensioners in my territory. It was my obligation to report if I found any who had health problems, etc., or financial problems; we actually attended to that. We actually increased pensions so that people would be able to be self-sufficient. But there is no real protection.

The insurance I was talking about--and I refer back to the wind-up of Confederation Life in the mid 1990s. Some people think today that insurance companies don't fail. That was one of the top insurance companies of the world that failed. The decision the court made, that Judge Houlden made, was that the policyholders, which included pensioners, were entitled to be ahead of all other creditors. It was surprising to me when I looked back, because when that court decision was made, there wasn't an unsecured creditor represented in the court--not very bright.

That is the case for insurance companies, and I'm asking the very question that I think you're addressing: why don't we have the same thing for pension plans? Why aren't they treated similarly to insurance provisions in that same category, in pensions and other policies?

The other thing that occurred during the decision on Confederation Life is that it was determined that.... It took five years to do the wind-up, by the way. During that five years, the liquidator was obliged to accumulate and pay compound interest on the value of these pension plans. I'm going to shock you because interest rates at that time were between 14% and 18%. Most of the policyholders walked away with more interest than they did principal.

So can't we look at innovative ways? I'm hearing from the experts that we can't change the bankruptcy act. Well then don't change the bankruptcy act. Make this pension program somewhat similar to what we already have in the insurance policies.