Posted: Thursday, 21 July 2011

Ken Georgetti wrote provincial finance ministers this month, reminding them of their commitment to real retirement security reform by expanding the Canada Pension Plan. He urged them to make expanding the CPP a priority decision item when the federal Finance Minister calls their next joint meeting.  Here is a sample of the letter sent to all ministers:

Dear Minister:

Almost fifty years ago, private sector companies argued that the difference between Canada Pension Plan benefits that would replace just 25% of the average industrial wage, and an adequate retirement income would be made up through workplace pensions and tax-subsidized savings vehicles. Let workplaces offer their own pension plans and leave individual Canadians to save on their own, via the RRSP system, they argued. Unions accepted that challenge and negotiated workplace pension plans with most of our employers that provided workers with the security of a decent retirement after a lifetime of work.

Today, employers are abandoning the promise that workplace plans would be a significant contribution to Canada's retirement security system. Workers are now being told that in tough times, secure guaranteed workplace pensions – once a fundamental pillar of Canada’s retirement income system – are too costly and must be abandoned. Whereas plan surpluses just a few years ago allowed employers to take contribution holidays, and poor legislative regulations (since tightened up) allowed firms to remove fund surpluses for their own use, companies are now looking for ways to escape solvency funding and shed risk.

Workers with workplace pension plans are now the lucky few, even in the face of concentrated attacks on the pension plans they have faithfully contributed pay cheque after pay cheque. Two-thirds of the Canadian labour force has no opportunity to participate in a workplace pension plan, and three-quarters in the private sector have no pension at work. With a growing pension divide, and the foundation for decent incomes in retirement crumbling beneath working families, anxiety and anger are building. Not surprisingly, pension security lies at the heart of nearly every major labour relations dispute in Canada today, in both the private and public sectors.

As employers renege on their previous commitment to workplace pensions, working Canadians are left with few alternatives. RRSPs and individual savings accounts have failed to ensure a secure retirement for millions of Canadians; “after 50 years of promoting RRSPs, we have to conclude they haven't turned out as envisioned,” as Don Drummond so delicately put it. Canadians are fed up with the scam of mutual fund fees and management expenses which, typically, will consume over half of an individual's savings over their lifetime. Canada's financial industry has the dubious distinction of having the highest management fees in the world.

For employers who fail to provide workplace plans, individual tax-assisted savings mechanisms like RRSPs and tax-funded programs like Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) have become another indirect taxpayer subsidy to business. These subsidies amount to a huge intergenerational transfer of wealth, as taxpayers face increased tax burdens with the federal government forced to increase payments under the OAS and GIS programs to help seniors whose workplaces have not provided adequate pensions.

Today's middle-class Canadians simply aren't able to save enough on their own after twenty-five years of wage stagnation, or they have seen their retirement nest eggs eroded by three stock market crashes in the past 15 years.

Despite employers’ repudiation of workplace pensions and the failure of tax-assisted private savings, a cornerstone of our system is working exactly as originally intended: the Canada Pension Plan. The CPP provides a secure, inflation-protected retirement benefit for life, in addition to spousal, disability and death benefits. Wherever you work in Canada, CPP goes with you – workers and employers share the cost together. It is actuarially sound for the next seventy five years at a minimum.

Canadians rely on the CPP, simply because it is the only pension plan that they can be sure will be there for them when they retire. And as employers renounce decent pensions at work, that reliance will grow. Yet by design, the CPP is restricted to replacing only 25% of pensionable earnings – a rate far too low to avoid a significant drop in the standard of living for future retirees.

The CLC's proposal would slowly phase-in a fully-funded doubling of future CPP retirement benefits over the course of seven years. While benefiting all workers, today’s youth stand to gain the most. Young workers are getting short-changed today with low-wage, precarious work. They are saddled with increasing amounts of student debt, and have few means to build on their own retirement savings that an expanded CPP would give them at a far more affordable cost. Our plan would guarantee, at the end of the next generation's working life, no Canadian ever again will retire into poverty.

Expanding the CPP will also reduce the pressures emanating from solvency shortfalls that threaten workplace pension benefits, allowing workers to retain the security of high-quality defined-benefit workplace plans. For employers without pension plans, an expanded CPP provides them with the ease and simplicity of a defined-contribution plan at low cost. An expanded CPP will also reduce the rising cost of means-tested benefits for retirees such as the Guaranteed Income Supplement (GIS), already projected to rise from $9.2 billion in 2011 to $22.2 billion in 2030. That applies to provincial top-ups to the GIS and municipal programs for low-income seniors as well. Given tax-free income from Tax Free Savings Accounts (TFSA), under its current regulatory regime, has no effect on GIS eligibility, that estimate is likely to rise.

Notwithstanding criticism from some quarters urging radical and comprehensive reform to avert the looming retirement crisis, our carefully detailed plan has been scrutinized by the former Chief Actuary of the CPP. The concept is endorsed by many pension experts across Canada who are now advocating some form of an enhanced CPP, including Professor Jonathan Kesselman whose study was published by the University of Calgary's School of Public Policy, and, more recently, Keith Horner in a study published by the Institute for Research on Public Policy. I include both their studies for your information.

On behalf of 3.2 million workers, the Canadian Labour Congress calls on you to support improving Canada Pension Plan retirement benefits. We know that in December 2010, the provincial finance ministers committed to not only working on the private sector option proposed by the federal government (Pooled Registered Pension Plans) but also to expanding the CPP. Minister of State for Pensions, Ted Menzies, has recently indicated to me in a letter that a range of options to enhance the CPP will be discussed at the next Finance Ministers' meeting. We urge you to continue to work with your provincial counterparts and to urge Finance Minister Flaherty to make expanding the CPP a priority decision item on that agenda. Supporting a phased-in, fully-funded increase in CPP contributions today will ensure that workers of tomorrow live in dignity and security in retirement.

Sincerely,

Kenneth V. Georgetti
President