Posted: Tuesday, 3 November 2009

Introduction

On behalf of the 3.2 million members of the Canadian Labour Congress (CLC), we want to thank you for affording us the opportunity to present our views. The CLC brings together Canada’s national and international unions along with the provincial and territorial federations of labour and 130 district labour councils whose members work in virtually all sectors of the Canadian economy, in all occupations, in all parts of Canada.

Canada Pension Plan Provisions of Bill-51

By way of introduction, as Members will be aware, we view the CPP as a key platform for the income security of Canadians in retirement. The CPP provides a secure, portable, inflation indexed, defined pension benefit at a very low administrative cost. The major problem with the CPP as is exists today is that it replaces only 25% of earnings up to the average earnings level, and less for those who earn more than average. The CLC has proposed to phase in a doubling of CPP benefits in order to create a much improved public pension system for our children, gradually taking some of the burden off our troubled system of private retirement savings and employer sponsored pension plans.

We believe that major improvements to the CPP should be debated and discussed, among other issues, at a national pension forum. This should include employers and unions, pensioner groups and organizations with a direct stake in pensions, as well as the federal and provincial governments who are jointly responsible for pension policy, including the direction and management of the CPP.

We believe that there should be much more scope for input to the management of the CPP than has been the case to date. After all, employers and workers pay the premiums which fund the plan, and its fundamental objective is retirement security for working people.

While welcoming some of the changes made in this Bill, we do have concerns with the increased penalties for early retirement and think there should be much more consultation before these changes are implemented. Penalties that were proposed before the current economic crisis will have to be rethought in the new context of high unemployment and what promises to be a slow recovery.

We welcome the fact that a person will be able to take up their retirement pension as early as age 60 without the requirement of a significant work interruption or earnings reduction. This will allow workers to begin to collect the CPP without completely withdrawing from the work force. If they choose to continue to work between age 60 and age 65 – most likely in a different job or on a part-time basis – they and their employer will be required to contribute to the CPP until age 65, thus raising their pension benefit. The measure will likely encourage some workers to phase-in their retirement by combining an early CPP pension with part-time work. It will also allow low paid older workers to supplement their earnings with an early CPP pension.

The Bill allows for an extra year of low or no earnings to be excluded when calculating the CPP benefit. This is welcome but is not enough to take account of the fact that entry into the full-time work force now typically takes place at a much later age than when the CPP began as participation in post secondary education has soared.

The Bill also sets the framework for changing the adjustment factors that apply to early or late take-up of retirement pensions, starting in 2012 and phased-in over 5 years. The plan is to raise the amount by which the CPP is reduced if taken before age 65, from 0.5% to 0.6% per month. Eventually, a worker who takes up the CPP at age 60 will lose a maximum 36% of their benefit, compared to 30% today. Those who work past age 65 will receive a higher benefit.

The intent of governments is to encourage older workers – especially baby boomers now nearing retirement age ­- to stay in the workforce longer. We question whether this is still appropriate given changing economic circumstances.

Governments were recently anticipating significant future skills shortages. While these may still emerge in some occupations, such as the skilled trades and in health care, Canada will not face a general shortage of workers in the near to mid term, and demand from employers in future years is likely to be much lower than was once thought to be likely. For example, future demand for skilled trades workers in the manufacturing sector will be lower because of plant closures, while many skilled trades workers have recently joined the ranks of the unemployed.

The economic crisis will make it much more difficult for younger workers to find jobs, because there will be fewer good jobs, and also because many baby boomers will retire later than they had planned in order to rebuild their retirement savings. Increasing penalties for early retirement may well raise youth unemployment.

In conclusion, we urge the federal and provincial governments to reconsider imposing additional penalties on early take-up of CPP benefits until circumstances have changed. This issue can and should be debated at the national pensions forum we have called for.

This document is respectfully submitted on behalf of the Canadian Labour Congress: