It would be an understatement to say that pensions were in the limelight last week. As a result of several major developments and announcements, CARP VP of Advocacy Susan Eng was in very high demand: she had no less than four speaking arrangements (in different provinces)! At each conference or summit she attended, she was asked many questions about the changing pension landscape, the adequacy of private savings and about CARP’s reaction to recent political developments real improvement, lip service or trap? In this issue we cover those major developments individually they will be linked throughout this article. A bit of additional context, however, is warranted.
Canada is at an interesting and important juncture in its path to enhanced retirement security for all Canadians. Academics and experts have known for a long time that Canadians were headed for some trouble if they didn’t respond to changing realities, but there was no political will to tackle this problem until the recession hit. Once the recession did hit, many saw their savings ravaged and were made to feel how vulnerable they truly were. Suddenly the concept of shared risk made profound sense and there was an increased willingness to buckle down for change.
The recession changed the zeitgeist, creating the political and public will to hear CARP’s message, setting the stage for these discussions. Perhaps this explains the themes and timeliness of the Conference Board of Canada’s two events this week: the 2014 Pensions Summit – which Susan attended as a panelist on Monday April 28th) – as well as the Council on Healthy Ageing Conference focusing on the importance of financial care for Canadians (where Susan was a special featured speaker Tuesday April 29th 20140). She gave a lengthy talk to an audience of professionals from various fields, and all were fascinated with her presentation. It elicited much discussion and she received many questions. It was interesting to get feedback and discuss these questions with a mixed crowd of professionals when each of them had a different stake or interest in this debate.
While the vast majority of experts agree that drastic action is necessary and that CPP enhancement is the best solution, some stragglers still insist that we are not facing a retirement crisis or that we would be better served by a private solution like PRPPs. It is hard to build a case against CPP expansion particularly as the number of high-profile expert supporters grows by the day. With the release of a report titled Macroeconomic Aspects of Retirement Savings, David Dodge, the former Governor of the Bank of Canada, is the latest to weigh in and throw his support behind CPP expansion. His report declares it an essential measure and argues that it will provide a savings vehicle that is superior to many corporate Defined Benefit (DB) plans.
Expansion opponents always cite the economy and job loss as the reason we shouldn’t be implementing an expansion. Dodges report tackles the charge head on: he explains that while there may be an initial and minor economic impact, the funds effect on Canada’s economic growth will be significant and long-lived, far outweighing any short-term negative impact on the economy.
With regard to CPP enhancement, we are talking about a small, phased-in percentage, which will also create a large pension fund that will invest in national and provincial infrastructure creating jobs and sustainable growth. Mr. Dodge is neither the first or the last high-profile name to endorse enhancement. But there is no denying that he is one of the most gifted macro-economic minds in the country, and if anyone ought to know about economic impact or lack thereof it would be Mr. Dodge. For more information about the newly released Dodge report read the CARP Precis.
Despite the mounting evidence and support for expansion, the federal government took it off the table, even after the provincial premiers strongly indicated they would support the plan. These issues were part of the discussion when Susan spoke at the at the Conference Board of Canada’s 2014 Pension Summit. Her co-panelists were Derek W. Dobson, Chief Executive Officer and Plan Manager for CAAT, Frank H. Swedlove, President of the Canadian Life and Health Insurance Association, as well as Max Zehrt, Associate Director of Advisory Services at Sustainalytics.
The session was moderated by the very knowledgeable and capable Joe Hornyak, Executive Director at the Benefits and Pensions Monitor. Mr. Hornyak did a great job of drawing out the panelists various perspectives. The session dealt with the concepts of sustainability and sufficiency. One of the framing assumptions dealt with the fact that people approaching this discussion held different paradigms. The Conference Board of Canada noted that: Sustainability means different things to different people. From the perspective of a plan sponsor, sustainability means matching assets to liabilities for the long term. For the responsible investment community, sustainability is linked to the environmental and social impact of the choices that fund managers make. For individual retirees, sustainability means the fund must deliver on its retirement income promises.
Unlike other experts in attendance, CARP is in the business of gathering feedback from real retirees, prescribing solutions that will enhance the quality of life of all Canadians as they age and advocating for the implementation of these policies. We are in the business of change for the better. We are not tied to a particular model or a specific institution. We assess the landscape, review all the research and try to come up with the best proposal, period. We are also here to ensure that the needs of real people are heard and met. As such, we are removed from the complexities involved with running a fund or analyzing the industry. These events are always interesting, because they afford all participants the opportunity to learn from each other, it is especially instructive because the paradigms with which we approach these issues are often starkly different.
Susan was asked whether CARP placed a higher value on sustainability or sufficiency (the extent or generosity of the benefits) and she explained that they were not mutually exclusive we dont have to pick one or the other. Its a myth that pension funds that provide generous benefits are unsustainable they are only unsustainable if they fail to properly fund those benefits. You just have to be upfront and pro-active about cost and payment adjustments and avoid mismanagement through practices like contribution holidays when times are good.
One of the panelists suggested that we did not have a real retirement crisis and that we had a stellar retirement income system in Canada one that still deserved the faith we had always placed in it. The panelist was referencing the three pillars, government benefits, workplace pensions and private savings. During the past several decades, the three-pillar system had worked quite well.
As many critics of CARP’s advocacy for a more secure retirement are fond of saying, senior poverty has drastically decreased over the past 50 years. As CARP is fond of responding: this is largely due to the maturation of the CPP, a factor that will no longer contribute to the reduction of senior poverty which is now on an upswing. We also respond by helping to quantify and put a human face on this issue. Despite the reduction we succeeded in securing over those 50 years, today there are approximately 300,000 seniors living in poverty today a figure set to double by 2031 unless we make some serious changes.
It is odd to hear someone invoking the three pillars to advocate for the status quo or at least for less sweeping responses to the retirement income crisis. It is almost a self-defeating argument: one of the pillars is workplace pensions and we know all too well that they seem to have gone the way of the Dodo. Workplace pensions were once the norm, but that is no longer the case; today two-thirds of the Canadian workforce has none to speak of. Private savings options like RRSP’s have not been the answer: in 2011 Canadians contributed 34.4 billion to RRSPs (4.5% of the total room available).
It seems abundantly clear that it is time for a big solution not more of the same. The province of Ontario is obviously with CARP on this. On Thursday May 1st, Ontario released a provincial budget and announced that it would forge ahead with a made- in-Ontario solution to the pension crisis. Finance Minister Charles Sousa went as far as to proclaim that if the federal government wouldn’t lead, Ontario would have to ensure that people were taken care of.
Through this budget, the province is offering what the Federal Minister of Finance elected to leave on the table a mandatory supplementary pension modeled on the CPP. Ontario is leaving the door open: other provinces may join in the plan or it may be rolled into the CPP if the government changes its position (or is voted out). This issue features a more extensive article about the new Ontario Pension Plan, click here to read it. The article includes some captivating figures and projections that you wont want to miss they showcase what an amazing vehicle can do.
Ontario’s is a bold move indeed. Politically it could be called adversarial but many provinces have signaled they are potentially interested in partnering with Ontario. Alberta, British Columbia, Manitoba, PEI and Nunavut have all said they would watch closely and with much interest. If many of the provinces join Ontario’s scheme it will exert considerable pressure on the federal government. Canadians being covered by a patchwork of pension benefits that vary from province to province would certainly run counter to the principles of universality and fairness. If the budget passes it will be very interesting to see where this goes.
CARP has been advocating for a Universal Pension Plan – supplementary pension plan modeled on the CPP -but not necessarily part of the CPP – since 2007 before anyone else spoke of it and now it may finally become a reality – either because the other provinces will pass parallel and reciprocal legislation or the CPP is increased.
If CPP is the answer to universal coverage, it seems that the federal government is taking a different tack. On April 24th, Minister of Finance Kevin Sorenson announced that the federal government would introduce a new form of benefit called the Target Benefit Plans (TBPs). These plans would be available for federally regulated corporations and Crown Corporation plan sponsors. The Minister claimed that the new TBPs would preserve and increase the number of employers that could offer employees an affordable workplace pension plan that has a predictable pension in retirement.
A target benefit plan is not necessarily a bad idea especially when compared to defined contribution plans and certainly a viable option for an employer to offer in the first instance. The concern is whether employers which already provide defined benefit plans will convert to target benefit plans which shift the risk to the employees.
The expectation is that agencies and crown corporations which currently offer defined benefit plans will want to downgrade their coverage to cut costs. New Brunswick’s experience with these plans bears out these fears this is explained in our piece on the federal governments plan, click here to read What you should know about the newly proposed target benefits.
Governments are using the current climate of pension envy as political cover to shift the risk in their public service plans. Many of us, particularly those with no pensions, might look at this and wonder why we should feel sorry for civil servants if their rich benefits are downgraded.
The damage lies in the erosion of the concept of a pension promise: it hurts the notion that people should get what they were promised once they are retired. Finally, pension envy is not constructive. Eroding one segments pensions does not enhance other Canadians chances at a good pension. In fact, it does quite the opposite.
These were some of the messages that we took to Edmonton on May 1st and 2nd, where Susan and the Edmonton and Calgary Chapter Chairs met with Alberta’s Minister of Finance and Albertas Minister for seniors.
Susan also took the CARP message to the National Congress on Housing and Homelessness, hosted by the Canadian Housing Renewal Association (CHRA) where she was a guest speaker. She rounded out the trip by addressing all of the local members gathered for the Edmonton CARP Chapters AGM. To read all about CARP Nationals trip to Edmonton, read our coverage in this issue.
CARP has heard from its members that pensions are a priority. Throughout our travels from the Maritimes to British Columbia, and following every public presentation, many questions have been asked about retirement income security. The questions and the anxiety seem to be reaching a fever pitch as the debate on retirement income security continues.
We are aware that CPP expansion is not a panacea and as such it constitutes a part a very important part of CARP’s agenda for pension reform. We also advocate for other measures like an increase to the GIS for low-income seniors. In CARP’s Pension Reform policy paper, we set out the important guiding principles for the creation of a public retirement savings vehicle. So far, there has been very little criticism leveled at these assumptions.
PRPPs have not worked and saying that the sky is falling on public pension is not much more helpful. Actuaries adjust their assumptions and projections every year. If public plans are underfunded, there are other solutions than the erosion of benefits. Whatever the outcome, though, reducing public pensions will never result in getting all Canadians the pensions they need. It is not a solution.
Ontario has come up with what seems like the next best thing if the federal government refuses to move on CPP expansion. CARP will be looking very closely at what happens next. Perhaps the other provinces will follow suit and create a plan that is national in scope.