It is indeed an honour to be sitting directly in front of you, instead of beside you, and cheering you on in your balanced decisions, to which we listened many days and many nights at this committee. I enjoyed it all.
Welcome to the new members here.
It is great to be back, and great to be back to speak to what I think is a well overdue option for our pension or income retirement system in Canada.
I should mention that I'm here with some very learned people, some from our Department of Finance—Diane Lafleur, Leah Anderson, Lynn Hemmings, and Yasir Syed—and as well from OSFI, or the Office of the Superintendent of Financial Institutions, a couple of experts, Carol Taraschuk and John Grace. John Grace and I and Lynn covered a lot of miles developing this new concept. They have been a tremendous help. Bill , the Pooled Registered Pension Plans Act, is the reason we are here.
Mr. Chair, Canada's retirement system is recognized around the world by such experts as the OECD as a model that succeeds in reducing poverty among Canadian seniors and in providing generous levels of replacement income to retired workers. Simply put, our system is the envy of the world. The introduction of the pooled registered pension plan, or, as it has come to be known, the PRPP, will only build on this well-earned reputation.
The success of this model rests on the strength of the three pillars. The first pillar is made up of the old age security, or OAS, as well as the guaranteed income supplement, often referred to as the GIS. These programs provide a basic minimum income guarantee for seniors and are funded primarily through taxes on working Canadians. Our government has a responsibility to ensure that programs such as these are available for the next generation of Canadians as well. That's why our government will take a prudent, balanced, and responsible approach to making sure that OAS remains sustainable.
The second pillar is the Canada Pension Plan as well as the Quebec Pension Plan. These are mandatory public target benefit pension plans that provide a basic level of income to Canadian workers when they retire. There are currently 16.5 million workers contributing to either CPP or QPP. With these programs paying $44 billion in benefits per year to now more than 6.5 million Canadians, the CPP is the centrepiece of Canada's pension system. I'm proud to say that it is fully funded, it is actuarially sound, and it is sustainable for the long term.
The third pillar is composed of tax-assisted private savings opportunities to help encourage Canadians to accumulate additional savings for retirement. It includes registered pension plans and registered retirement savings plans. In total, the cost of tax assistance provided on retirement savings is currently estimated at $25 billion per year.
How do the PRPPs fit into what, as I say, is a good system already?
In 2009 a joint federal-provincial research working group conducted an in-depth examination of retirement income adequacy in Canada. While the working group concluded that Canada's retirement system is performing well, it also found that some modest- and middle-income households may not be saving enough for retirement.
Of particular concern were the following findings. Participation in employer-sponsored registered pension plans was declining. The proportion of working Canadians with such plans has declined from 41% in 1991 to 34% in 2007. Also, Canadians are not taking full advantage of other retirement savings options, such as the RRSP. Currently there is over $600 billion of unused room in RRSPs.
Through you, Mr. Chair, let me reassure the committee that our government recognizes the importance of ensuring that all Canadians have adequate income for their retirement. The report by the working group sent a clear signal that a gap exists on the voluntary side of Canada's retirement system.
With this information in hand, our government took immediate action to fill that gap. Over the past two years, our government's commitment to strengthen Canada's retirement system has taken me to every province and territory and countless communities across this country. In my travels, I've consulted with many Canadians, met with our provincial and territorial counterparts, and held discussions with small and medium-sized business owners as well as self-employed Canadians.
At our federal-provincial-territorial finance ministers meeting in December of 2010, after examining the various proposals that came out of the consultations, the federal, provincial, and territorial governments unanimously decided to pursue the pooled registered pension plan framework. This decision was taken because the PRPP was considered an effective and appropriate way to target those modest- and middle-income individuals who may not be saving enough, and in particular those who currently do not have access to an employer-sponsored registered pension plan.
What then are the PRPPs? They are in fact a large-scale, broad-based pension arrangement. They will be available to employees with or without a participating employer. As well, they will be available to the self-employed. This is particularly important as, incredibly, over 60% of Canadians do not now have access to a workplace pension plan. In short, PRPPs will provide these Canadians with access to a low-cost pension arrangement for the very first time.
By pooling pension savings, PRPPs will offer Canadians greater purchasing power. Basically, Canadians will be able to buy in bulk. This means more money would be left in their pockets for their retirement. The introduction of PRPPs also marks a significant advancement for small and medium-sized businesses. Small and medium-sized businesses have, until now, experienced a significant barrier in being able to offer a pension plan to their employees. Under a PRPP, most of the administrative and legal burdens associated with a pension plan will be borne by a qualified, licensed, third-party administrator.
We all understand that Canadians want their governments to work together to deliver results for them, and the PRPP is a prime example of what we can accomplish for Canadians when we do just that. Bill represents the federal portion of the PRPP framework and is a major step forward in implementing PRPPs. Once the provinces put in place their PRPP legislation, the legislative and regulatory framework for PRPPs will be operational. This will allow PRPP administrators to develop and offer plans to Canadians and to their employers.
Working together, I am confident we can get this important new retirement savings option up and running for Canadians as soon as possible. Let me quote Dan Kelly, the vice-president of the Canadian Federation of Independent Business:
This can't come soon enough from our perspective. We think this has great potential.
Before I take questions from committee members, I cannot stress enough how the introduction of the PRPP is just the most recent example of this government's continuing commitment to ensuring that Canadians have a dignified retirement.
I would like to take some time before you today to highlight some of the actions our government has taken to secure retirement income for Canadians. Financial literacy, for example, is an area where we are working to improve retirement income outcomes. Obviously, a strong system depends on the ability of its users to make informed decisions. That is why our government launched the task force on financial literacy to make recommendations on a cohesive, national strategy to improve financial literacy across Canada.
Since 2006, our government has increased the age credit amount by $1,000 in 2006 and then another $1,000 in 2009. We've doubled the maximum amount of income eligible for pension income credit, up to $2,000.
We introduced pension income splitting. We increased the age limit for maturing pensions and RRSPs to 71, up from 69 years of age before.
All told, we have provided about $2.3 billion in annual targeted tax relief to seniors and pensioners.
In addition, Budget 2008 introduced the tax-free savings account, which is particularly beneficial to seniors, as it helps them meet their ongoing savings needs on a tax-efficient basis after they no longer are able to contribute to an RRSP.
Our record also includes important improvements to several specific retirement income supports. In Budget 2008, we increased the amount that can be earned before the GIS is actually reduced. We raised that to $3,500 so that GIS recipients will be able to keep more of their hard-earned money without any reduction in their GIS benefits. Also, Budget 2008 increased flexibility for seniors and older workers with federally regulated pension assets that are held in life income funds.
In May 2009, Bill reformed aspects of the CPP to increase flexibility and fairness in the plan and allow it to better reflect the way Canadians live, work, and retire.
In Budget 2011, we announced a new GIS top-up benefit for the most vulnerable seniors. Seniors with little or no income will receive an additional annual benefit of up to $600 for seniors and $840 for couples.
The next phase of Canada's economic action plan provides an additional $10 million over two years to enhance the New Horizons for Seniors program. This additional funding is enabling more seniors to participate in social events, pursue an active life, and contribute to their community. The program provides funding for projects to expand awareness of elder abuse, promote volunteering and mentoring, as well as encourage social participation of seniors.
Clearly, Mr. Chair, our records show our government is committed to the financial well-being of Canada's seniors, a commitment we've demonstrated since our first budget.
The PRPP is only the latest example of our government's continued commitment to helping Canadians realize their retirement dreams. The introduction of the PRPP not only fills a gap in Canada's retirement system but makes a system that is the envy of the world even stronger.
Thank you, Mr. Chair. I'd be happy to take questions.
And a belated happy birthday to the minister. I enjoy any opportunity I can get to centre you out a bit.
I'm also pleased to hear the minister talk about OECD. The OECD recently reported that the OAS system in Canada is fully sustainable, and I'd like to see that quote coming from the government from time to time.
Like the minister, I toured the country over two summers, with 40 community meetings, and I never once had anybody say they would like another vehicle that exposes their pension savings to market fluctuations. We already have that with RRSPs.
Specifically, when we consider the legal and financial risks associated with defined benefit pensions, employers who will receive, as they see it, additional savings in the PRPP administration fees because they'll be paid by the employee.... In effect, I believe this legislation has created a powerful incentive for employers to potentially want to shift their existing pension plans, whether they be defined contributions, defined benefit, or even group RRSPs, to PRPPs.
I'm concerned, and I'm sure Canadians will be concerned. For those who have a defined benefit workplace pension now, this will in a sense undermine the security they have going forward.
I'd like the minister's comments.
:
Thank you very much, Mr. Chair.
Minister Menzies, thank you for being here with your staff and your family. Welcome to you and to them.
I have to tell you that I'm disappointed we weren't able to do more in terms of the CPP. I had the opportunity in a previous life to visit an awful lot of employers throughout Nova Scotia and Newfoundland and Labrador, where the workplaces had defined contribution plans or group RRSPs. I saw workers with 35 years in getting ready to retire, and as a result of the downturn in the economy, they lost hundreds of thousands of dollars in their pensions over six or eight months. I watched these grown men and women cry because of the insecurity of that form of investment.
I think we can do better. I talked to one of the provincial finance ministers during some of these negotiations. I understand there was one province that was a holdout. I wish the federal government could do more on this. I don't see this as anything more than having private plans out there that are completely subject to the market. Increased competition will mean more plans, more administration, and more costs. Ultimately it's not going to do what you state we're trying to do.
I want to again say that on the whole question of the CPP and what makes it work, it seems like a health benefit plan. It's mandatory, people have to participate, it's guaranteed that way, it's properly funded, and it's well administered. It's just like a health benefit plan, cafeteria style. It gives people choice. That's how it's sold. All of the healthy people pick a few items in that lineup, and the people who end up needing it don't have the coverage. The costs are increased for the people who do need the plan.
I really have a number of concerns with this. I don't think we're doing anything to try to deal with the whole question of retirement income security. We have the CPP fully funded for 75 years. I just think we could have done a whole lot more as a country and a government that's being lauded for the work it has done with the CPP.
I urge you and your colleagues to go back to the drawing board and try to pull something together on the CPP. I think there's a will out there among provincial governments.
I'm a little interested in the Australian situation with the super funds. In particular, I understand that one of the major criticisms of the Australian super funds is that the returns quoted in the Australian Prudential Regulatory Authority are based on the total assets of the super fund rather than different investment options.
Is anybody familiar with that? Okay. Well, I understand, just from spending some time in Australia and also doing research on the subject—and being interested, because I was an investor there for a period of time—that the largest problem with the super funds in Australia is that the reporting functions take the total fund, the return on investment for the total fund, rather than the individual investment options that the funds offer. In fact, if you look at even the total funds before the economic global crisis in Australia, you see that over 35% of those funds had over a 9% return, and 10% of the super funds had double-digit returns.
So on the point that was raised earlier by the NDP, you have to look at it in a different context. If just the entire fund were looked at instead of specific performance options in the funds, obviously you would have a different return on investment, and since the global economic downturn, we've all had some sort of hit on our stock markets and investments generally.
Now, I did have the opportunity of doing an MBA in finance. During that period of time I discovered that there were four sentences that were used a lot. One was “competitive marketplace” and another was “economy of supply”. The third was “spread the risk”, and the fourth was “wake up, dummy”, which I heard a lot.
Voices: Oh, oh!
Mr. Brian Jean: Those three terms were all used by the NDP, and what that indicated to me was that they certainly knew what it was to have financial options. But in all of those cases, those things speak to good investment options. In particular, spreading the risk means that with this PRPP, we are actually enabling a competitive marketplace that will spread the risk to many, many different options, which will make it not just cheaper but a better risk beta for everybody. Is that fair to say?