Presented by Ken Georgetti on Wednesday, 14 April 2010

(Check Against Delivery)

Many thanks for inviting me here to discuss what I believe is the most important public social policy issue facing Canadians in decades – the need for retirement security and pension reform.

It’s always a pleasure for me to speak at a university and with such a distinguished audience in attendance – because I never attended a post-secondary education institution.

But I have to tell you, sometimes – just sometimes – the best advice may come from outside the halls of academia and also – when it comes to investing for retirement – far from the financial advisors of Bay Street and Wall Street.

And after the financial meltdown I thought an audience like this might be interested in some good working class investment advice.

Now, this is not the high-falutin’ advice you get from guys in $4,000 suits with red suspenders and a Bentley.

But I’ll let you be the judge as to who is smarter – your investment advisor or the CLC president.

If you had listened to your stockbroker and invested $1,000 in Lear Corporation at the beginning of 2008, by the middle of 2009 you would have had a negative return of $981 and 96 cents.

If you had another $1,000 and invested in the AIG Group in 2008, it would have had a negative return of $988 and 18 cents by the middle of 2009.

If you got really valuable advice and had put another $1,000 into Nortel Networks and your shares would have dropped to only $8.40 – another negative return of $991 dollars and 60 cents!
 
But my advice to you would be simple and effective:

I would have advised you to buy – and then to drink – $1,000 worth of Molson's Canadian beer instead of investing in any of those stocks.

You would not have paid a cent to your advisor.

You would have felt better about tough times for weeks.

And after that – I’m told the positive return on all those empty beer bottles is still holding steady at a massive $60!
More than all of those other shares put together!

So I tell you – in all sincerity – keep your assets liquid – and always recycle!

Now, you might say – very funny Georgetti – but what about pensions and other financial issues – why should we listen to you on those?

Well – I note that Professor Jack Mintz recently advised both the Ontario and British Columbia Liberal governments that the best thing they could do to improve their economies and create jobs is to introduce a little idea called the Harmonized Sales Tax.

Jack – don’t expect a thank you note from Dalton McGuinty or Gordon Campbell!

Investing in beer and empties is amusing, but more seriously, I have to wonder whether some of the eminent experts giving all of us sage economic advice about retirement security, actually understand what ordinary working people are up against in this country.

So let’s get to the heart of the matter – define the problem and tell you what the Canadian Labour Congress proposes as its better solution.

Why do we need pension and retirement security reform?

Because many seniors right now are living in poverty or slightly above the poverty line – about one in seven.

That’s simply unacceptable in a country this rich.

1.6 million seniors today collect the Guaranteed Income Supplement – that means they have incomes not much above $15,000 per year.

This amounts to 35% of all 4.2 million Old Age Security recipients, which is the first clue that low senior poverty rates cited by the federal government are deeply flawed.

The reality is it’s a struggle for those seniors.

What do you say to a 75 year old woman who receives less than $1,300 a month, and is wondering how to pay for the medication she needs, or to pay for the occasional help to clean her apartment?

Do we tell her the current system is just fine?

I was in Windsor last month and an elderly woman spoke with tears streaming down her face, telling us how she has to make decisions every week on whether to eat or to pay her bills.

She wears hand-me-down clothes and cuts her own hair because she can’t afford to go to a salon.

She is why we need pensions and retirement security reform.
Why else do we need retirement security reform?

Because RRSPs have failed to safeguard retirement since introduced in 1957.

Only one Canadian taxpayer in four made any RRSP contribution in 2008.

New polling suggests only 1 in 3 Canadians bought RRSPs in 2009.

The current average value of an RRSP for an older worker nearing retirement is only enough to pay for an annuity of less than $300 per month.

And Canadians have over $500 billion in unused RRSP contribution room being carried forward.

Despite this obvious evidence that RRSPs have massively failed to do the job they were intended to do, some experts are still pushing them as the answer.

But others are admitting the truth.

Don Drummond – the outgoing chief economist of the TD Bank – said this last year:

“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.”

Exactly!

There’s another solution that I like a lot – but one unlikely to be adopted by the Conservative federal government.

That would be to dramatically increase the unionization rate of Canadian workers, because most union workplaces offer a decent pension plan.

But I noticed over dinner last night that Finance Minister Jim Flaherty didn’t tell you he was planning to take the CLC’s advice on that solution!

So the reality today is that – despite labour’s best organizing efforts – only 38.5% of employers today offer workplace pensions.

And even those workers fortunate enough to have pensions are facing both cuts due to the economic crisis and severe pressure from employers to give up their superior defined benefit pension plans, and accept inferior defined contribution pension plans, where income is dependent on the high risk market.

Both RRSPs and defined contribution pension plans put an intolerable degree of risk into retirement plans, when the goal should obviously be to offer security.

Canada’s CEOs clearly understand this – that’s why corporate executives insist personally on getting defined benefit pension plans in their compensation packages.

Half of all registered pension plans in Canada have just 10 members or less – and you know those belong to the people with offices at the top of downtown office towers – because the CEOs know that defined benefits plans provide access, security and certainty.

So – if we recognize that seniors living in poverty is unacceptable, and we understand that RRSPs aren’t working – and if we see that defined benefits pension plans are on the decline for anyone but a corporate CEO – what is the solution?

The Canadian Labour Congress believes the solution is very simple, very effective and most important – very achievable.

The CLC wants to double the benefits of the Canada Pension Plan.

It may seem dramatic – but in fact phasing in a doubling of Canada Pension Plan benefits over 7 to 10 years can easily be achieved – and should be a government priority.

The Canada Pension Plan already covers 93% of all Canadians, union or non-union.

So improving the CPP is the simplest and most effective way to dramatically improve the retirement security of all Canadians.

The CPP is portable – no matter where you work, or how many times you change jobs, CPP benefits follow you.

And it’s universal – all workers pay into it – whether employed or self-employed.

Here’s how it would work – currently both workers and employers pay 4.95% of salary into the CPP.

Under our plan, CPP contributions would gradually increase over 7 to 10 years to 7.8%.

These increased contributions would effectively double the average earnings replaced by CPP pension benefits, on a go-forward basis, to a maximum – based on the 2009 maximum CPP benefits – of $1,635 per month.

And here’s the kicker.

I’m sure you recall that David Dodge – former governor of the Bank of Canada, recently told Canadians in a report he did for the CD Howe Institute, that the solution to retirement security is simply to save a lot more money!

The CD Howe’s report also said to replace 50% of the $42,000 pre-retirement income of the average worker – they need to be saving an additional 5% a year from the time they are 30 years old.

Our plan – to eventually double CPP benefits would require an additional 5.7% savings in the form of CPP premiums.

So essentially, David Dodge and the CD Howe Institute and the CLC agree on the math.

Average income earners need to save an additional 5% or so a year, to be able to retire at half their pre-retirement income.

Where I suspect David, the CD Howe Institute and the CLC disagree, is in who should bear the burden of the extra savings.

For the financial industry, individuals alone should be contributing that extra money and into risky financial instruments, with no guarantee of stable returns.

For us, we believe the contributions should be shared equally between workers and their employers.

The CLC plan would mean a fundamentally better pension system for younger workers, but all workers would also gradually build up a better CPP benefit.

While there are obviously modest cost increases for employers, there are also important benefits – they get the benefit of a defined contribution plan – without the administrative costs and without the liabilities.

That’s likely why a Compass poll of business leaders last year saw a strong majority supporting CPP expansion.

They realized improving CPP benefits is not a high price to pay for pension fairness.

And they know an improved base CPP would take some of the burden off existing employer plans, given that most plans are integrated with CPP benefits.

For workers who don’t have workplace pension plans, the benefit is clear – they get the same thing CEOs want and get for themselves – a stable, reliable defined benefit plan.

Workers get a better quality basic pension – one that is portable and secure – and that will provide them with more security and dignity in their retirement years than they would get if nothing changed.

To individually save the equivalent of our modest increase in CPP premiums, an average worker would need savings of close to $250,000 at age 65.

Why?

Because the administrative costs of the CPP are so low compared to individual savings vehicles, and benefits are indexed to inflation.

In addition to making the CPP the main choice for retirement security, the Canadian Labour Congress believes two more changes are urgently needed to improve retirement security.

We need an immediate 15% increase in the Guaranteed Income Supplement benefits to lift seniors out of poverty.

That increase in GIS benefits would cost $1.12 billion.

So for just 6.2% of the $18 billion we currently spend subsidizing RRSPs through the tax system in Canada – we could lift all seniors out of poverty?

Is that so much to ask in such a rich country as Canada?

I don’t think so.

And we need pension plan insurance to protect every worker’s pension income, so they can retire with dignity and security.
We insure our lives, our homes, our vehicles, our jobs – but not our pensions!

That doesn’t make any sense – it must change.

In conclusion, Canada’s unions and their members look forward to participating fully in the national debate on retirement security and pension reform – and we have a lot to say – because we have everything at stake.

You know, former CPP Chief Actuary Bernard Dussault likes to say – when it comes to pensions, everyone wants to go to heaven… but no one wants to die.

We believe that under the Canadian Labour Congress pension reform plan, you can get a little piece of heaven in retirement without going through hell in this lifetime to get it!

Thank you.