December Flurries of Pension Activity

December 23, 2010 – Two weeks ago, everything was quiet on the pension reform front. It turns outs that months of inactivity were just the quiet before the storm. In the days preceding the Finance Ministers meeting in Kananaskis, Federal Finance Minister

Jim Flaherty announced a proposal for a new retirement savings vehicle that would operate as a sort of hybrid of occupational plans and private RRSPs.

Pooled Registered Pension Plans (PRSPs) would target Canadians currently without occupational plans. According to Flaherty’s proposal, they would also offer defined contribution benefits rather than defined benefits. The big sell, then, is that PRPPs would represent an additional savings vehicle for Canadians with the added benefit of economies of scale that result from pooling individual investments.

Is it enough?
News of the PRSP proposal made a huge splash going into Kananaskis, but opposition mounted quickly and hasn’t relented. The big concerns are over the involvement of the private sector. More precisely, it increasingly appears that the PRPP’s only advantages over existing RRSP’s is the pooling of investments and that employers will be able to set-up group accounts.

Otherwise, there is no credible promise that fees will be contained or that there will be independent oversight of the banking industry. What’s more, the typical advantages of many occupational plans and the CPP are also not a part of the new proposals, which will likely be voluntary – on the part of the employer and employee – and will come in the form of defined contributions rather than the more secure defined benefits. CARP will be pursuing regulations to better protect the contributors and beneficiaries.

What Happened to CPP Enhancements?
Coming out of the Finance Ministers’ meeting in PEI this summer, the two provincial holdouts on CPP expansion were Quebec and Alberta. And while both of those provinces give the federal government good cover for withdrawing from commitments to discuss CPP enhancement, it is increasingly evident that the federal government was never committed to CPP expansion. Last week, Prime Minister Stephen Harper said “I think all are agreed that while we will continue to look at improvements, now is not the time for CPP premium increases.”

A number of the other provinces, however, aren’t prepared to shut the door on CPP expansions. Prince Edward Island, Nova Scotia, New Brunswick, Manitoba, British Columbia and Ontario called on the federal government to keep a modest CPP enhancement on the table as part of a package of reforms that would make saving for retirement easier, more affordable and more secure for Canadians.

The coalition wants a modest, phased-in, fully funded enhancement to CPP that must be affordable for workers and employers, as well as a pension system that can provide more Canadians with access to low-cost pensions.

“It’s just not acceptable in our view to put this discussion off,” said Dwight Duncan, Ontario’s Finance Minister. “A number of us, the provinces, have talked over the course of the last number of hours and there’s still very substantial support for moving forward [on CPP].”

CARP in the Media Frenzy
The meeting in Kananaskis proved to be more about the controversy surrounding Flaherty’s PRPP proposal than it was about meaningful and productive discussions on pension reform. The media coverage of the PRPP announcement and the subsequent controversy persisted throughout the past week. Leading the National Post, for one, to declare that “It’s official: seniors are hot.”

Speaking to a number of media outlets, including the CBC’s The National, the Financial Post, Toronto Star, and more, Susan Eng expressed CARP members’ disapproval for the wasted time and empty promises.

“The finance ministers missed the opportunity to usefully advance pension reform and instead wasted the time on inter-jurisdictional squabbling.” Said Susan Eng, VP Advocacy for CARP. “CARP members would have welcomed any action that improves on the status quo – which has left many of them with financial insecurity as they face retirement – for their children as well as themselves. Now they will be left wondering if all this was all a hollow promise in an election year – and given that a majority of our members’ would vote the federal and provincial governments out of office for not acting on real pension reform, this was probably not a good tactic.”

What’s Next?
At the end of 2010, not much seems to be certain on the pension front. It appears that PRPP’s, despite the reaction against the proposal, will win the day. CPP expansion, on the other hand, will require a miracle of sorts to become a reality. The ministers promised to talk about it again at their June 2011 meeting.

Given that the upcoming year will likely see a number of elections across the country, pension reform will stay on the table. With increasing numbers of Canadians worrying about retirement security, it’s doubtful that any government fighting for re-election will be able to ignore the tide of concern. CARP will continue to press for meaningful change, and the more our members voice their views to government, the greater the likelihood that pension reform will take a turn in the right direction.