Posted: Thursday, 10 December 2009
As published in the Vancouver Sun, December 10, 2009
By Ken Georgetti - Canada’s finance ministers will meet in Whitehorse in mid-December to talk about pensions. The Canadian Labour Congress and its 3.2 million members welcome this development, but the retirement security crisis is too important to be solved by a few people meeting behind closed doors. Last summer, we at the CLC called for a pan-Canadian pensions’ summit that would bring together government, business, labour and other stakeholders to develop real pension solutions. I am renewing that call.
Hundreds of thousands of Canadian workers have lost their jobs in the most serious economic downturn since the 1930s. Thousands of workers, such as those at Nortel and in the devastated forestry, pulp and paper sector, have seen their hard-earned pensions wiped out or put at risk due to plant closures and bankruptcies. But the problem of inadequate pensions existed prior to the recent financial crisis. The Conference Board of Canada reports that poverty rates among Canadian seniors doubled between 1995 and 2005. One-third of Canadian workers aged 24-64 have no personal retirement savings at all, and 61.5% of workers (11 million people) have no workplace pension.
The governments of Alberta and British Columbia recognize the problem and have mused aloud about introducing their own pension plan. Financial services companies on Bay Street, who have dominated our pension debate for too long, are promoting the same old solutions in which their products, not surprisingly, would feature prominently. It would be a mistake to follow a piecemeal approach floated by a few provinces or the investment industry. We need a pan-Canadian solution to deal with our patchwork system of public and private pensions.
Public pensions are good in their design but governments chose decades ago to keep the benefits low. Even the maximum amounts available through the Canada Pension Plan, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) fall short of replacing the 50% to 70% of pre‑retirement income that people need to maintain decent living standards. There are 1.6 million seniors – about 35% of those receiving public pensions – who live on less than $11,000 per year.
RRSPs were billed as the solution to our pension woes, but even senior bank economists are now admitting that this approach has failed. Only 31% of Canadians hold any RRSPs, and the average RRSP wealth for workers aged 55-64 is roughly $60,000, which would buy an annuity payment of $250 per month. That’s not a great return for a program that costs taxpayers over $18 billion a year. RRSP investments have suffered during the recession and administrative fees in Canada are among the highest in the world.
We have three key suggestions for protecting pensions and improving retirement security. We should use an enhanced CPP as the cornerstone of pension reform. We propose to phase-in a doubling of benefits so that the proportion of average earnings replaced by CPP rises from 25% to 50% over seven to ten years, to $1,635 per month. This would be financed by a modest increase in worker and employer premiums and would be far less than the 2-5% annual management fees charged by most financial institutions on RRSPs.
The CPP already covers 93% of working Canadians and offers them an accurate sense of the pension income they can expect in retirement. The CPP is highly risk tolerant because of its size and it has the lowest administration fees of any pension plan in the country. The CPP is highly portable – no matter how many times they change jobs, workers will still be covered. The CPP cannot be matched by any provincial or regional solution. This is all about improving pension security and leaving a fairer and better pension system for our children. Young and future workers would benefit the most from CPP expansion.
The CLC is also calling for an increase in the Guaranteed Income Supplement (GIS) so that no senior lives in poverty. This could be accomplished by investing $682 million in additional GIS spending. Finally, we want a federal system of pension insurance. The pensions that Canadians worked so hard to earn should be insured up to $2,500 per month ($30,000 a year) per person, much as our bank accounts are now.
We believe that all Canadians deserve to live in security and dignity in retirement. In making these proposals, we are championing the same progressive values that changed our health care system with the advent of medicare in the late 1960s. We can make a similar choice for pensions today. Let’s have a national summit early in the new year to build toward a pension system where no Canadian is left behind.
Ken Georgetti is president of the 3.2 million member Canadian Labour Congress.