In Debate: Pooled Registered Pension Plans are Not the Answer
May 28th, 2012 - 5:43pm
Ms. Irene Mathyssen (London—Fanshawe, NDP) moved:
Motion No. 1:
That Bill C-25 be amended by deleting Clause 1.
Madam Speaker, it is important that we look very carefully at the pooled registered pension plan because it simply does not serve Canadians. In addition to not serving Canadians, it does nothing to solve Canada's pension crisis.
The pension crisis has been the subject of debate for the past several years. The issue is that more than 11 million Canadian workers do not have a workplace pension plan. Old age security and the Canada pension plan, which everyone has, do not provide enough money for people to live on in their retirement. To make matters worse, most Canadians are not making up for their lack of pension plan by saving for retirement on their own. Less than one-third of people entitled to contribute to RRSPs actually do so. There are now more than $600 billion in unused RRSP contribution room being carried forward, and only about one-third of Canadian households are currently saving at levels that will generate sufficient income to cover their non-discretionary expenses in retirement.
It also needs to be noted that the market is not a reliable place in which to gamble retirement security. Turmoil on financial markets has had and will continue to have a devastating impact on workplace pension. People who were saving for retirement through RRSPs have found all too often that the value of their investments has dropped so much that they are now faced with having to postpone their retirement or struggle to replace retirement savings by attempting to find some kind of work. The reality is, however, that finding employment at age 68 or 70 is profoundly difficult. The workplace has changed and the skills that retirees once brought to the job are no longer marketable.
For several years there has been a clear consensus among experts that real pension reform was and continues to be critical. However, rather than intelligently and positively engaging in reform that is practical, the government has instead introduced pooled registered pension plans, PRPPs, which, according to the federal finance minister, will make low cost, private sector pension plans accessible to millions of Canadians who have up to now not had access to such plans. It is magic.
The legislation introduced in mid-November would allow employers to offer PRPPs to their employees. The scheme would be run by insurance companies and other financial institutions that would pool the savings of workers whose employers sign up for the program. The financial institutions would run the program on behalf of employers and, of course, will charge fees for doing so. Employers would not have to contribute to the plan. Workers' savings would be locked in unless employees provide notice in writing that they want to opt out, which, apparently, would be allowed.
No pension would be guaranteed by this program. In effect, it is yet another voluntary savings scheme that would do nothing to address the pension crisis we face. Since very few people take advantage of existing voluntary retirement savings schemes, it is not clear why officials are claiming that proposed PRPPs will prove more attractive than existing programs. So far, the only advantage being promoted by PRPPs is that management fees will be lower than for individual RRSPs since contributions will be pooled. However, there is no guarantee of lower fees nor is there any certainty that this will be a big selling point for the plans. It is also worth noting that there is no evidence people are not saving through RRSPs because of the high management fees. It is far more likely that, because individuals are raising families, paying bills, trying to manage the cost of housing and educating kids, there is no money left at the end of the month for an RRSP.
The PRPP is not a defined benefit plans. It does not provide a secure retirement income with a set replacement rate of pre-retirement income. It is not fully transferrable. It is not indexed to inflation and will not increase with the increasing cost of living. Employers, not employees, will decide contribution levels and it will not be mandatory for employers to contribute or match workers' contributions. Without employers contributing, it is not really a pension plan. In fact, employers who do not help their employees save for retirement could end up with a competitive advantage over those who do.
Canada does not need yet another voluntary tax-assisted retirement savings program. It needs public pensions that provide all Canadians with a basic guarantee of adequate income that will protect their standard of living in retirement. Expanding the Canada pension plan would meet this objective.
In fact, federal and provincial finance ministers seemed set to take this route when they assembled for their meeting in Alberta in December 2010. However, because Alberta opted out, the federal government decided to abandon talks and introduce the PRPP scheme instead.
Improving the replacement rate of CPP retirement benefits would provide much better retirement pensions to virtually all Canadians. A relatively modest increase in contribution rates would be required, but that could be phased in over a period of time, as the Canadian Labour Congress and others have proposed.
The CPP covers all workers, including those who are self-employed, and its benefits would be guaranteed in relation to earnings and years of service. They would be indexed for inflation and fully portable from one job to another. This option would address the two key issues in the pension system that are causing concern, the lack of coverage of workplace pension plans and the fact that individuals are not saving for their retirement on their own. As well, of course, an expanded CPP could reduce federal expenditures on GIS, because more people would have adequate retirement incomes.
While the government says CPP contribution rates cannot be increased when there is a fragile economy, it is worth noting that when the financing of CPP was changed at the end of the 1990s, combined employer-employee CPP contribution rates nearly doubled from 5.6% of covered earnings to 9.9% over a five-year period, during which the unemployment rate fell from 9.6% to 7.6%. It should also be noted that the PRPP scheme will do nothing to help the baby boomer generation now coming up to retirement.
It seems this is a lost generation as far as pension reform is concerned. It has been estimated that roughly one-third of Canadians now in the age group 45 to 64 are likely to end up with incomes that fall far short of adequate minimum incomes and/or incomes that would allow them to maintain their standard of living when they retire.
The adequacy of CPP benefits has been an issue for more than 30 years. It is time now for federal and provincial governments to set aside ideology and work together to solve the problem.
The study by pension expert and Canadian Centre for Policy Alternatives research associate Monica Townson provides a thorough analysis of the PRPP program and argues that expanding the Canada pension plan would provide better retirement pensions to virtually all Canadians. Ms. Townson found that the expansion of the CPP would provide a mandatory defined benefit pension to virtually all Canadians, giving them a basic retirement income that for modest and middle income earners would preserve their standard of living.
The government's PRPP proposal does not do that. It does not guarantee a pension. Benefits would depend on selection of investments and stock market performance. Participation would depend on an employer's deciding to take part in the program. It is basically just a defined contribution pension.
In a defined contribution plan, there are no guarantees of how much money would be left when an individual retires. The risks are borne entirely by the individual employee. In these types of plans, the amount of money available at retirement depends on the outcomes of the investments, which cannot be relied upon. Defined contribution plans lack the security of defined benefit pension plans like the CPP-QPP, which pay a guaranteed set amount upon retirement.
It is important to remember that Bill C-25 places no caps on administration fees or costs, and merely assumes lower costs will emerge through competition in the marketplace. Financial institutions like banks, insurance companies and trust companies stand to profit substantially from these fees. However, expanding the CPP-QPP would not cost the government any more than its proposed PRPP.
More important, expanding the CPP-QPP would not entail transferring huge management fees to private financial institutions.
How can I get through to the government? Seniors have worked hard all their lives. They deserve decent retirement. Bill C-25 would not provide that.
Mr. Mike Wallace (Burlington, CPC):
Madam Speaker, based on the NDP's position that the pooled registered pension plan would not be good enough because it is not a defined pension plan, does that mean the party is opposed to RRSPs? That is a voluntary program that has been around for many decades. Is that party advocating we get rid of RRSPs as a tool available to Canadians for saving for retirement?
Ms. Irene Mathyssen:
Madam Speaker, as everyone knows, RRSPs have been around for a long time and they are quite significantly entrenched in our system. People need to know that unfortunately there are problems with RRSPs that the government simply does not talk about.
First and foremost, it is about $17 billion in terms of cost to provincial and federal governments in order to sponsor these RRSPs, $5 billion for the provinces, $12 billion out of federal government revenue every year. Imagine what we could do with $17 billion in federal and provincial government revenues in terms of making sure there is pension security for Canadians.
The government also does not tell people that the management fees I referred to take up as much as 40% of the investment an individual makes in an RRSP over a 40 or 45 year period. That means these folks think they are going to have enough and they are actually making headway, but the reality is they are not. They are being taken advantage of in many ways.
We cannot get rid of our RRSPs because they have been entrenched for too long. But we need to be cognizant of their downside.
Ms. Elizabeth May (Saanich—Gulf Islands, GP):
Madam Speaker, I agree with my colleague from London—Fanshawe. I am glad to have my RRSPs. I have been trying to put money away in RRSPs. However, when one looks at their efficacy, one finds that overall they cost the system a tremendous amount and really provide little pension availability, and they provide less as we look down the income scale. The people who most need pension benefits are less likely to find them through RRSPs.
I am attracted to the idea of more municipal bonds. I know we are thinking outside the Bill C-25 box, but what does the member for London—Fanshawe think of Canadians being able to put their retirement savings in municipal bonds in their own communities?
Ms. Irene Mathyssen:
Madam Speaker, that is something we should be investigating.
In December 2010, the federal government said it was going to sit down with the provinces and talk practically in a progressive way about the retirement crisis we face. Perhaps future talks with a different government would find something solid and workable. I hope there is a different government in 2015. In fact I know there will be a different government.
Perhaps we can sit down with municipalities and find something solid and workable that would invest our pension funds in a way that provides a significant return, safety and security, defined benefits and the kind of pension deserved by Canadians who have spent their entire lives building this country, putting in place the social safety net. It would be far better than allowing that bunch to destroy our social safety net, because, quite frankly, that is what they are up to.