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Ken Georgetti addresses the Canadian Pension & Benefits Institute - Atlantic Regional Conference

Presented by Ken Georgetti on Friday, 16 September 2011

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Thank you for inviting me to participate on this panel on a key issue for all workers whether they are in a union or not in a union – and that is their ability to retire in dignity after a lifetime of work.

I want to start by challenging the claim that Canadians are doing relatively well at saving for retirement.

In fact, there is more and more evidence that we have a very serious problem of inadequate retirement savings in this country.  This past July, Dr. Keith Horner estimated that half of Canadians born between 1945 and 1970 and earning between $35,000 and $80,000 are facing at least a 25% drop in their post-retirement standard of living.

Just this week, the Canadian Payroll Association released survey results that showed 40% of Canadians expect to retire later than they originally planned because they haven't been able to save enough.

How did we get to this point?

The basic problem is that two of the three “pillars” of Canada’s retirement income system are failing: workplace pensions, and private retirement savings. 

Not so long ago, Canadians had an explicit agreement with employers: Canada’s universal, public earnings-related pension plan, the Canada and Quebec pension plans, would be limited to replacing only 25% of workers’ pre-retirement income, on the understanding that employers would provide secure, adequate workplace pensions for employees.

Today, 12 million Canadians – two-thirds of all workers, and three-quarters of workers in the private sector – have no workplace pension plan, and the number is dropping.

Employers that once offered defined-benefit plans are abandoning them as fast as they can, while keeping them for their CEOs and senior executives.

Yet left to fend for themselves, individuals are unable to save on their own for retirement.

Workers without a workplace pension plan are most likely to have insufficient savings for retirement. Small wonder, since Canadians are working paycheck to paycheck, and average real wages have barely budged since the late 1970s.

We need to return to the basics – starting with the fundamental principle that every single worker in this country, private sector or public sector, deserves a decent and secure income in retirement after a lifetime of work.

That means the security of a defined-benefit pension, the type of plan that corporate executives and politicians are careful to set up for themselves.

Defined-contribution plans and pooled registered pension plans will not provide the kind of retirement income people need and deserve. 

Four stock-market meltdowns in twenty years – two within the last three years alone – have rocked Canadians' confidence in the markets and made them adverse to the risk of defined-contribution plans and their own investments.

Pooled registered pension plans are no solution either.

Folks, in the union movement we know pensions, and we know human behaviour.

We've been negotiating workplace pensions long before the Canada Pension Plan existed.

And I can tell you, as a negotiator for my union local who sent me to the bargaining table on their behalf, if it isn't mandatory, most people won't contribute.

And they'll see through any scheme that doesn't require an employer to contribute. 

For Canadians, nothing compares to the Canada Pension Plan when it comes to providing a secure, universal, and fully-portable pension at a very low cost.

The CPP/QPP delivers secure, predictable, inflation-indexed retirement benefits for life, at a far lower cost than the fees charged by banks and mutual fund industry. With continued diligent management and oversight, it will continue to do so for the next 75 years and beyond.

And best of all, virtually all employed and self-employed Canadians already belong to it – and pay into it.

The problem is that the retirement benefits the CPP/QPP pays out are too low to provide an adequate income in retirement.

Expanding the CPP is the lowest-cost way to dramatically increase the security and adequacy of retirement benefits for workers without workplace pensions and those with defined-contribution plans.

I'm pleased that the four Atlantic provincial finance ministers agree – they've been on board with expanding the CPP since June 2010 – when all the finance ministers met.

Leading that Atlantic consensus were Minister Graham Steele, and Wes Sheridan from PEI. 

There was a broad consensus at that June 2010 provincial and federal finance ministers' meeting that expanding the CPP was the most viable option to deal with the future crisis that will come if we don't act now.

Jim Flaherty himself came to the same conclusion, based on the facts. Unfortunately a philosophy got in his way. 

So the question is expand by how much?

The Canadian Labour Congress presented a plan to gradually phase-in, over 7 years, a doubling of future CPP benefits, on a fully funded go-forward basis.

By increasing CPP contributions from 4.95% to 7.95% over 7 years, we can achieve a 100% increase in future CPP retirement benefits. There’s simply no better deal anywhere.

We’ve crunched the numbers, and the costing behind our plan has been scrutinized and verified by Bernard Dussault, former Chief Actuary of Canada.

You know, our prudent and pragmatic plan has been criticized for taking too long to reach a full doubling of benefits.

As everyone in this room knows, the full benefit of any pension plan comes at the end of your working life.

So yes, our plan works best for young people retiring 40 years from now, who will fully benefit from a doubling of CPP benefits when they leave work.

Today’s youth are often working at low-wage, insecure jobs, while trying to cope with growing levels of student debt.

An expanded CPP would give them a more adequate retirement income at far lower cost than they would be able to save on their own.

Without a better CPP, young people in the future will face an enormous inter-generational transfer of wealth.

Huge increases in Old Age Security and the Guaranteed Income Supplement will be needed to pay for those who don’t earn enough to save adequately on their own. 

But our plan also benefits older workers approaching retirement, who would see some modest increases in their retirement benefits, based on the number of years paying at the higher rate.

Provincial and municipal governments, student and seniors groups, anti-poverty organizations, a growing number of academics and pension experts like Jonathan Kesselman and Keith Horner, even the Calgary Herald understand that expanding the CPP is a no-brainer.

The groups opposed to CPP expansion are the same ones that want a free-ride on the public purse.

Without expanding the benefits paid out by the CPP to cover a larger percentage of pre-retirement income, Guaranteed Income Supplement expenditures are projected to climb from $9.2 billion in 2011 to $39.7 billion in 2050, when fully one-third of the senior population will be receiving GIS! 

In my book, that qualifies as a taxpayer subsidy to businesses that don’t provide pension plans for their employees.

By 2036, there will be 39 seniors for every 100 working Canadians compared to the 20 seniors for every 100 working Canadians today.

In this province – PEI – it will be almost 48 seniors per 100 working Islanders, compared to the 23 today.

Now that's an inter-generational tax transfer that those who opposed expanding the CPP don't want to admit.

Groups like my friends here at the CFIB want to deflect attention from this looming tax bill by pointing at supposed gold-plated pensions in the public sector. 

Make no mistake, these attacks are aimed directly at women, who now make up half of workplace pension plan members, and who are most likely to be employed in the public sector.

These women are earning decent but in no way extravagant pensions. The average public-sector pension in 2009 was about $18,000 a year.

Cadillac pension?

More like Ford Focus to me.
Greg Hurst recently wrote in Benefits Canada that the CFIB’s "Pension Tension" campaign is “all wrong,” and on this one, I have to agree with him.

Groups like the CFIB that oppose expanding the CPP in favour the PRPP idea like it because it will be voluntary, and will not require them to pay a single cent.

But we have very few details on how the PRPP is supposed to work.

The federal government can’t guarantee that savings will be protected against inflation or future market turmoil, and it can’t guarantee that the management fees charged by private sector brokers won’t bleed away future earnings.

The one thing we do know is that voluntary plans do not work. The experience of other countries tells us that voluntary plans do not work.

The CPP is already perfectly portable across jobs and across the country.
Will PRPPs be equally portable?

In Australia, mandatory workplace DC plans exist.

The government found that every time workers changed employment, they joined a new pension fund, leading to a massive proliferation of retirement accounts.

By 2006 there were 5 million “lost members” – accounts belonging to members with whom the administrator had lost contact.
In fact, PRPPs are shaping up to look a lot like group RRSPs.

Don Drummond, the ex-chief economist of the TD Bank, said:

“After 50 years of promoting RRSPs, we have to conclude they haven’t turned out as envisaged. I don’t know why we don’t just recognize this and make the needed adjustments to the retirement income system.”

I couldn’t agree more.

Why don’t RRSPs work?

Because they’re voluntary, and most people don’t have the means to save enough for retirement on their own.

We know RRSPs have failed to live up to their promise, and can’t compare to the CPP when it comes to providing an adequate, secure benefit in retirement.
To be sure, for a small fraction of high earners, PRPPs are very attractive.

In 2009, 11% of Canadian tax-filers reported income over $80,000 a year.

That same 11% of tax-filers contributed more to RRSPs than the bottom 89% of Canadian tax-filers combined. 

Whereas Canadians as a whole use about 6% of their RRSP contribution room, these high income-earners are most likely to max out their RRSP contributions.

Not surprisingly, it is self-employed professionals with high incomes – doctors, lawyers, and certified general accountants – with no access to workplace pension plans who like the idea of PRPPs. They’re looking for additional and lower-cost tax-assisted savings vehicles.

Now, the CFIB likes to paint the CLC's plan to expand the CPP as a “job-killing payroll tax-hike.”

But the evidence shows CPP contributions simply do not discourage employers from hiring.

Beginning in 1997, the CPP contribution rate was nearly doubled over a five-year period, during which the unemployment rate fell from 9.1% to 7.6%, and continued to fall afterwards.

Everyone that has a livable pension is spending it – and that’s good for small business.

In fact, a poll we did of small business owners showed 68% of them agreed – good pensions are good for business. 

So instead of spending precious government resources trying to sell Canadians on a scheme designed by and for the financial services industry, the federal government should just accept all the evidence it has, listen to the pension experts and expand the Canada Pension Plan as soon as possible. 

When you convince a minister as conservative as Jim Flaherty, with facts and statistics, that’s a compelling case for change.

I look forward to your questions. Thank you.

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