Pension Reform – Less Talk more Action

If talk is all we needed, then pension reform is all but accomplished.

You can’t turn around without someone holding forth an opinion on our retirement security or insecurity. And all this talk has brought the industry players to the table with their own new and improved offerings to help us out. And that’s the good news!

The downside is that the public gets so exhausted watching the tennis match that there may be no energy left to keep the political decision makers focused on the need for reform.

So let’s take stock.

First of all the prolific media coverage really is good news – it means that certain issues are now out in the open and when some experts try to tell us there’s nothing wrong with the status quo, it’s not just CARP members who can rebut those assumptions.

So for example, the public discourse covers:
• How much you need to retire
• How little the OAS/GIS/CPP system provides
• Lack of reliable vehicle to save for our retirement
• How much you need to save [18 – 20% annually]
• How little people are saving
• How expensive retail investment fees are
• How rich are public pensions
• How fallible are private pensions even those too big to fail
• The difference between defined contribution and defined benefit plans – Clue: if you don’t know, you don’t have one!

The political response has been to make technical changes for existing pension plans. The proposals for supplementary pension vehicles have come from the Opposition parties. The BC election promise for a voluntary plan appears not to have survived the election. You can count all the various meetings of Finance Ministers – Montebello, Whitehorse – as action since they could have ignored the issue altogether. Nearly every province and the federal government have invited public comment. Even the Senate has got into the Act.

So you might think that all these eminences will eventually come up with something to fix our future retirement insecurity. Not so fast. The anti-reform forces are just getting started.

The “nothing needs doing” crowd uses national averages and international comparisons to convince us, and equally important, the politicians, that Canada’s retirement income system is among the best in the world and today’s retirees are doing just fine. So by extension, future retirees will be okay too, they say.

Do you feel fine? Do you think everybody does? Do you care about those who didn’t have your foresight to save for their own retirement?

Do you much care that ONLY 4.4% of Canadians 65-plus live below the poverty line? This is presented as a good thing. It was much worse a couple of decades ago – in the double digits – and the maturation of the CPP and GIS has lifted a generation of people out of dire poverty. But that effect is now exhausted. Is that good enough for you?

Maybe not – especially if we are reminded that 1.6 million older Canadians rely on GIS payments to help them get by. Many such people are one medical event away from dropping below the poverty line.

So once this got out, the naysayers start with: “Low wage workers can’t afford to save any more” – as if that was their concern all along – “so you can’t introduce a mandatory universal retirement savings plan.”

They do trip over a good point – the sticker shock of how much we have to save to provide for our own retirement has people looking for a way out of believing it. One caller to a radio program I was on in Winnipeg told me to give my head a shake – he said there was no way he was ever going to put that kind of money aside –with mortgage and kids to support, he was barely making it from paycheque to paycheque. I pointed out that teachers and civil servants have 18 – 20% or more of their wages set aide for their pensions and still manage to buy houses and raise kids. And then he started on about paying too much tax.

Fair point. Reducing taxes and increasing wages especially in the low wage sector would go a long way to improving retirement security.

And for people who have already retired, especially those who depend on public pensions, CARP continues to press for substantial increases to OAS and GIS. Last June’s Parliamentary Motion to do so has netted one private members’ bill to increase GIS proposed by the Bloc Quebecois – yet to be debated.

CARP’s recommendations for eliminating mandated RRIF withdrawals or increase to TFSA room for retirees has got some media traction and mention in the Senate hearings. But that’s still just us talking – not the Finance Ministers who have the authority to make the changes.

Some of the talk about “management expense ratios”, “active or passive investment” or “smoothing lifetime consumption” would make your ears bleed. All you need to know is that there are many models of widely based pension funds that work well for their members and survived the recent economic crisis more or less intact. The CPP is one of them. The Teachers’ funds and in Ontario, the much ballyhooed HOOPP [Healthcare of Ontario Pension Plan] also did well compared to say, General Motors, but the important difference is that the employers are public sector – not broke – yet.

So the point is, we already know how to provide a decent pension for some Canadians. So why is there a full court press telling the rest of us to make do with retail investment vehicles?

It’s too soon to predict whether the Finance Ministers are ready to take on the status quo. They meet again in June. They have all indicated a willingness to consider all options – with the possible exception of Ted Morton in Alberta. Let’s hope that’s not just talk.

Keywords: pension reform