I call the 26th meeting of the Standing Committee on Finance to order.
Pursuant to Standing Order 108(2), we're continuing our study on measures to enhance credit availability and the stability of the Canadian financial system. Within that study, this is our fourth meeting on the specific issue of pensions.
We have with us today four organizations and one individual: the Canadian Labour Congress; the Common Front for Retirement Security; Mr. Erik Andersen; the Confédération des syndicats nationaux; and the Air Canada component of the Canadian Union of Public Employees.
We'll start with Mr. Georgetti, and we'll work our way down through the list. If we could have a five-minute opening statement, then we'll go to questions from the members of the committee.
Mr. Georgetti, you have your five-minute opening statement.
Thank you very much, Mr. Chair.
On behalf of the 3.2 million members of the Canadian Labour Congress, I thank you for the opportunity to present our views on pension issues. However, I should point out that we actually had to barge our way into this meeting, as someone forgot to invite the representative of 3.2 million workers. In fact, 83% of all registered private sector pension plans come under our affiliates.
Let's begin by reflecting on why pensions are an important issue today. The reason, quite clearly, is the current economic crisis. The crisis has exposed the weakness of our pension system, but it's also seen employers claim that pension rules are onerous and challenging to the operations of their businesses.
Honourable members of this committee, these employers' claims must be taken with a large grain of salt. Even today, in the midst of serious economic challenges, most Canadian employers—and I'll say it again—don't have a wealth problem. What we have is a wealth distribution problem and a pension fairness problem.
We have a pension system that rewards executives and shortchanges workers' pensions, and that system must be changed. We have a country where the top 100 employers dole out an average pension to their managers of $930,000 a year. Meanwhile, workers are told to take less or even to fend for themselves.
We have a federal economic action plan that values tiny personal tax cuts and huge corporate tax cuts over protecting good jobs and creating pension security for workers.
We have bankruptcy laws that allow rich creditors to pillage workers' hard-earned pensions. Last week this committee heard from forestry workers in Quebec that workers at AbitibiBowater in Grand Falls learned that 2,500 creditors ranked ahead of them in bankruptcy court. These creditors, largely banks and hedge funds, have filed 60,000 pages of documents to recover their losses. Meanwhile, workers at AbitibiBowater are owed between $30,000 and $100,000 each in severance pay. There are 87-year-old widows who won't see a dime of their former husbands' pensions.
We have a federal pension system that allowed Canada Post to take a contribution holiday ten months into this current economic crisis. The same system gave solvency funding relief to Air Canada in 2004, only to see the company reward executives, sell off all their assets, pay out huge dividends to shareholders, and underfund workers' pensions, and now once again is sitting there crying poverty.
We have management fees for defined contribution plans and RRSPs that gouge 30% to 40% from a worker's expected pension. We're talking about billions of dollars being diverted into the deep pockets of Bay Street.
We have studies that show most Canadian employers can pay for today's pension deficiencies. This is true for many large federal sector employers, who are in a good position relative to others.
Still, today we hear calls for weaker pension funding rules at the worst possible time.
As I said before and will say again, a decent pension for all is not impossible. Even in today's economy, it's not impossible. It can happen if we embrace the right pension values and if the policy ideas that we use fit those values. Our recent brief to the finance committee on pensions shows how it can happen.
I'll just end with a summary of our demands.
We say no to unnecessary pension bailouts. Of course we should assist employers with genuine problems and use the government's existing extraordinary financing framework of some $200 billion, as announced in the federal budget, to do that.
We should set a policy goal to double CPP and QPP pension benefits, and allow them to gradually replace the under-performing RRSP industry—which, I might add, uses up $19 billion a year in tax credits, or about half of what we spend on OAS, if you can believe it. And we should increase OAS benefits so that no senior lives in poverty ever again in this country.
We need to create a federal system of pension insurance that mirrors the system for bank deposits and credit union deposits. This fund should be financed through levies from pension plan sponsors themselves. And we should create a reserve fund for this insurance system through a small financial transfer tax on Canadian stock market trades.
Critically, for the sake of genuine fairness, we need to ensure that the full value of workers' pensions is protected in bankruptcy proceedings. If Canadians shouldn't be in the front of the line when it comes to protecting them, who should be?
Thank you, Mr. Chairman, for including us in this hearing this morning.
I am Dan Braniff, unpaid volunteer and the founder and spokesperson for the Common Front for Retirement Security.
Common Front is the largest general advocacy in Canada, representing 20 diverse organizations, consisting of two million members. I think you have my list on file.
I last appeared before your committee in October 2006, appealing for pension splitting, and that followed a three-year advocacy campaign. That was described by my members as the best Hallowe'en trick ever. Pensioners rejoice every year when they fill out their joint election for pension splitting, and that means this reward for you goes on forever.
Pension promises are under unprecedented stress. Capital markets lie unprotected from the pillage of unethical forces. The majority of defined benefit plans suffer solvency deficits. Contribution plans are inefficient, and participants lack expertise and guidance. One-third of Canadians do not have access to occupational plans.
The deficiencies are interrelated and demand a consolidated solution. Retirement security, of course, is dependent on market stability and regulation. Universal and equal access is essential if social turmoil--we call it pension envy--is to be avoided. A lethal combination: plan members watch their pension security evaporate while perpetrators of toxic investments fill their pockets and pension investment managers appear to take excessive gambles to reward themselves while the funds are going down the tube.
Contribution holidays should be postponed until rules are strengthened. The regulator needs more power to scrutinize funding obligations, diminishing solvency trends, and fiduciary assumptions. Next to the banks, pension funds form the most powerful engine in this country, driving the economy. Retirement security motivates savings, and that's what we need in this country.
Pension funds require a contingency reserve, a rainy-day provision for surviving economic emergencies like the current meltdown. The 10% surplus tax threshold should be abolished. Surpluses above the proposed contingency reserve should be amortized similar to the amortization of solvency shortfalls.
Solvency deficits should rank above all creditors in bankruptcy. The Common Front proposes that sponsors pledge fixed assets as security for shortfalls other than a letter of credit. The Common Front supports previous submissions and the one I heard this morning for a universal pension plan. If Canada had a UPP in place, the solvency crisis would not exist. General Motors, Nortel, and Air Canada pensioners would not be facing a pension disaster.
Portability would enable pension plan transfers and a level playing field among competing private industries. Capital markets need a sophisticated national agency with laws and enforcement tools. They need to be staffed by legal and forensic economists equipped with investigative specialists similar to CSIS and the FBI.
Regulation reforms must have national standards for today's mobile worker and pensioner. Periodic schedules of regulatory reviews should be programmed to keep pace with rapidly changing economic times. We're far out of date.
Finally, eliminate the mandatory RRIF minimum withdrawal to enable pensioners the budgetary flexibility to preserve independence.
Thanks for your attention.
Good morning, Mr. Chairman and members. Thanks for the opportunity to come here this morning.
I come as a private individual. I took up this issue in 2002, so I come at it from an intellectual and moral perspective.
What I'm trying to focus on is the Canada Pension Plan and the board and its conduct. So I'll read from this text that you all have in front of you but others may not have seen.
The formation of the CPP IB as an independent corporation had to have occurred after representations were made that moneys surplus to the immediate needs of the CPP could be invested in other than government bonds to a significant financial benefit of the plan members.
The CPP legislated mandate is to act in the best interests of CPP contributors and beneficiaries, to maximize investment returns without undue risk of loss, and to take into consideration the CPP’s funding status and ability to meet its obligations. The reference there is from the legislation.
Beginning in 2002 I expressed my concerns to the finance minister, and my worries then and now are the following.
First, the CPP IB might become an investor of last resort for failing companies.
Second, equity investments represent an elevated level of risk incompatible with the mandate, and not understood or accepted by the contributors or the beneficiaries.
Third, private equity investments--more correctly described as speculations--have no place in the CPP fund, as valuations are not determined objectively when either purchased or valued.
Fourth, liquidity of many of the investments at the CPP fund will be compromised and often are unavailable.
Attached under tab 1, which you don't have, are copies of my representations, predominantly to the ministers of finance, beginning with a letter dated January 14, 2005, to the Honourable Ralph Goodale, and finishing with a letter dated February 18, 2009, to the Honourable James M. Flaherty. In each letter the theme is the same, but I have introduced examples of inappropriate investments--speculations, in my judgment--which support my concerns.
Attached under tab 2 are copies of articles and notices of these inappropriate investments. To help with the appreciation of the nature of a financial investment and speculation, I've included a short definition as well.
A speculation is where there is no promise of safety of principal and a financial return on the money, such as an interest payment. Posted on February 28, 2007, was a report titled “CPP Investment Board dips toe into U.S. real estate market”. The $500 million U.S. was characterized by the author of the article as a first major bet.
In contrast and well before this transaction, the Governor of the Bank of England publicly cautioned the British banks to be prepared for a 40% rollback in real estate values.
Additionally, the CPP IB would have had knowledge of the U.S.-based Case-Shiller housing index. In early 2007 that index was at an all-time high of 210, when the steady state is normally around 100.
Posted in The Globe and Mail on May 5 was a story about the CPP IB speculating on the prospect of building a very controversial power transmission line in Patagonia.
I'll go to conclusions.
The CPP IB engages in speculations that are incompatible with the legislated mandate.
Accountability to the beneficiaries is minimal to non-existent.
The use of non-publicly-listed assets sabotages the confidence in the financial statements of the CPP fund.
Suggestions.... Suspend all new investments and seek liquidity on the existing investments.
In the event that this isn't accepted, do a test: ask the CPP to volunteer projects and test it for liquidity and valuation.
Thank you, Mr. Chairman.
Good morning, Mr. Chairman. On behalf of CSN's 300,000 members, I am pleased that this consultation is being held and especially to be able to express our point of view on the future of pension plans.
CSN believes it is absolutely necessary to step back a little and do a complete review of our entire pension system in order to conduct an in-depth examination of the types and models of pension plans and, of course, of the scope and level of protection offered to the Canadian public.
To illustrate my remarks, I'll state at the outset three types of problems that merit more serious examination: first, the regression experienced with defined benefit pension plans; second, the small percentage of the Canadian labour force contributing to a registered pension plan; and, third, the legislative barriers to more sectoral or inter-corporate approaches.
In Canada, as in all the provinces, defined benefit pension plans are in trouble, and businesses are terminating them and transforming them into defined contribution plans. The recent financial crisis will no doubt enhance this trend and, unlike a number of provincial acts, the federal act does not require employers to cover the plan's shortfall on termination. In view of the current economic situation, CSN believes it is imperative that the government amend its act and thus prevent businesses from shirking the obligations they have undertaken toward workers.
In Canada, less than 40% of workers contribute to a registered plan, and that percentage is even lower in the case of private sector workers. If we compare our pension system with those of other OECD countries, we realize that a number of countries have systems that result in higher income replacement levels, and do so for many more of their workers than in the Canadian system.
For example, countries such as the Netherlands, Australia and England have passed legislation that is tougher on employers and compels them to contribute to registered pension plans. CSN believes we must look at the Canadian system as a whole and try to find mechanisms that will ensure adequate coverage for all workers at retirement. To that end, we believe we have to find new types of pension plans that help share the risk between employees and employers, not transfer all risks to workers, as is the case with capital accumulation plans in particular.
In addition, we must not only raise the legislative barriers to inter-corporate plans, but also put in place measures that encourage employers to join forces and offer their workers much better pension plans.
I think the Canadian government must take advantage of this consultation to go further. It must assume leadership of a joint reform with all the provinces to reposition the Canadian pension system and, lastly, to enable workers to achieve decent income levels at retirement.
To that end, CSN believes that the Government of Canada should adopt legislation that recognizes the right of all workers to be covered by a pension plan and that requires all employers to pay a minimum contribution. I remind you that these kinds of initiatives were taken by the Canadian government in the late 1980s, which led to an entire series of amendments in the provinces. I think it is about time to take another in-depth look at this matter and to achieve a much more adequate level of coverage, and I don't think that's unrealistic.
I cited some examples of OECD countries. I'll come back to the Netherlands and the recent legislation in England and Australia.
Hello. My name is Katherine Thompson. I'm the president of the Air Canada Component of CUPE. I'm here with you today representing the 6,800 flight attendants across Canada who are employed by Air Canada, a federally regulated company. Our members participate in a defined benefit pension plan sponsored by Air Canada. It is in regard to this plan that I am speaking to you today.
Historically, when given the opportunity, some employers fail to sustain adequate funding for the pension plans they administer. Accordingly, the government enacted pension legislation in order to protect retirees who may now be unable to re-enter the labour force should their pension plans fail.
Air Canada's pension plans, like many pension plans in Canada, have been adversely affected by our economic downturn. The assets of the plans have lost value, which puts more pressure, but certainly not the only pressure, on Air Canada's finances.
We believe strongly that the financial problems facing Air Canada as a business are unique to Air Canada and stem from the financial re-engineering of the company by its hedge fund owners after the company's 2004 insolvency. These problems will have to be addressed now that the consequences of the hedge fund restructuring have come home to roost.
The problems facing the Air Canada pension plans, however, are more common to all pension plans around the world. Those problems are a worldwide crisis in capital markets, in investments that have led to what we believe are temporary reductions in the value of our pension plan assets. Certainly most economic forecasts suggest the worst of these problems will be behind us in 2009, and we will see a slow return to a more normal capital market in 2010.
For these reasons, we recognize and indeed support the need for temporary measures to see Air Canada through this extraordinary period. However, we emphatically reject the argument that the current conditions require far-reaching, permanent change to our pension regulations. As you know, a group of seven federally regulated employers have recently requested very significant reforms to the Pension Benefits Standards Act, reforms that we think are fundamentally flawed. Under the guise of the current financial crisis, this group of corporations is asking to revalue the funding levels of their pension plans. This revaluing we think constitutes the single largest transfer of risk from shareholders to employees and retirees in the history of Canadian pensions.
In response, the Department of Finance released a discussion paper in January 2009 requesting submissions on the Pension Benefits Standards Act. We availed ourselves of this opportunity to provide a comprehensive submission to Diane Lafleur of financial sector policy branch.
I will refer you to our submissions to Madame Lafleur for more specific comments on the group of seven's proposal, as well as our position on the permanent changes to the pension act that they seek.
I would like to use my remaining time with this committee to make three specific suggestions. It is our hope that these suggestions will be of assistance to your committee.
We support extending temporary and balanced funding relief for federally regulated pension plans. We believe that there are clear principles that must be present for relief to be balanced.
Retirees and employees should maintain the right to withhold consent to any concessions that increase risk or simply transfer equity from plan members to other corporate stakeholders.
Any increased risk that may be agreed to should be fully secured through a deemed trust provision.
In conclusion, I'm here to give a voice to the predominantly female and minority-based flight attendants whom I represent, employees who during the course of their careers with Air Canada have not been the recipients of generous salaries or lucrative stock options to aid in their retirement planning. They are now relying on their elected officials to ensure that pension legislation continues to protect the pension plans that they've contributed to in the hopes of being self-sufficient upon retirement.
With these comments, I wish to close and thank the committee for its time and the invitation to address you.
Thank you, Mr. Chairman.
Good morning, ladies and gentlemen. Thank you for coming and giving us your comments.
Since our time is limited, we have to make choices with our questions. First I'm going to speak to Ms. Carbonneau.
Earlier you mentioned that virtually all workers should have access to a pension plan and that we should consider establishing a new plan. However, government plans are in effect, particularly the Canada Pension Plan and the Quebec Pension Plan. Private plans are often a support for those plans, which are not adequate.
You're talking about further extending the pension plans, but would that be done through government pension plans or private plans, which would be improved? You talked about making it easier to establish inter-corporate plans so that everyone would be covered.
We looked at two scenarios. It would have been almost natural for a union organization to tell you that it would be preferable to enhance the public plan, but that's ultimately not the scenario we chose. That's essentially because the mere fact of going back a little in time brings the risk of extremely high costs for future generations, given the demographic context.
We also believe in the need to offer coverage for the entire working population. We use the legislation passed, in particular, in the Netherlands, Australia and England as our model. It has the effect of forcing all employers to allocate a portion of their payroll to pension plan contributions. That subsequently makes it possible to establish good supplementary plans, among other things, if that can be done on an inter-sectoral basis, hence the need to establish an inter-corporate base.
This makes it possible both to limit the risk and to be realistic, in view of the fact that the industrial structure includes an enormous number of small and medium-size enterprises. We are more interested in this model than the idea of enhancement. This should be substantial so that real income protection at retirement is guaranteed. We think that by acting retroactively we would shift a very heavy burden of costs, which we consider prohibitive, onto future generations.
Under the legislation governing the provincial plans, in Quebec and Ontario, if a company closes and is nevertheless in good financial shape, but the plan is deficient, meaning the fund is in a deficit position, that becomes a debt of the business, which must cover the amounts promised. That's what's provided for in cases where the company is still in good financial position. If the company is bankrupt, things are different.
In the case of plans covered by federal legislation, if the plan is terminated and is insolvent, it's not a debt of the business. The employer may therefore terminate the plan and not cover the deficit, the guaranteed amounts, even though it is still in decent financial position. If it declares bankruptcy, that's not the same thing. What we're asking is for the situation to be as it is in the provinces, that is to say that, if the plan is fully solvent, it must become a debt of the business where that business terminates the plan.
Then I'll come back to Ms. Carbonneau.
Pension plans are all well and good. We have a public plan in Quebec, administered by the Caisse de dépôt et placement du Québec, the operation of which, we realize, is not as safe as that. You always have to exercise oversight.
Do you think there are any changes to be made to the management of pension plans with regard to the system of bonuses offered to those who negotiate the investments, who make big profits, but who ultimately don't make the right investments. Do you think a reform should be introduced in this area?
You're obviously citing the recent example of the Caisse de dépôt et placement du Québec. I'm definitely not going to be the one to tell you I'm pleased with last year's results of the Caisse de dépôt et placement du Québec.
I also think you have to know how to put things in perspective. Since that institution was put in place, its average return has nevertheless been 8.3%. In that sense, this is not a disaster. Having said that, I think some reforms must be carried out by that institution's board of directors. I can tell you that some things are starting to be deployed in terms of internal reorganization at that institution, in particular a strengthening of risk management mechanisms.
You raised the entire issue of executive compensation policies, and that's definitely a factor that must be considered. We need to find balanced arrangements that also take risk protection into account in compensation policies, in particular.
Thank you to the ladies and gentlemen who are here before us this morning. We realize how serious an issue it is we're facing, and we certainly appreciate those who come with suggestions and recommendations a little more than those who come with absolute demands. So thank you for your suggestions and recommendations.
Mr. Braniff, just to be clear here, you had suggested in your comments that perhaps we were a little late in coming to the conclusion that pensions were in trouble. I think Canada did get out ahead of some of the other countries in recognizing this, and I'm sure you understand, given the people you deal with on a day-to-day basis, how serious and how complex this is. That is evidenced when we get into the actuarial speak, as Mr. McKay refers to it. It is difficult to understand.
You referred to the 10% surplus. We've got into those discussions in many different communities and forums I have participated in. Do we need to expand that 10%? Many companies have told me that if they had had the opportunity to contribute more in the good times, they would have, and we perhaps would not have been in this situation. Are you hearing that? Do you think that's a possible solution?
It certainly is an impediment to have that ceiling, and it would be my contention that there shouldn't be a ceiling. There are other ways of doing this, one of which would be when there is a surplus to have it amortized as insolvency is amortized. In other words, have a plan when it goes up, and have a plan for it to go down. If you have an insolvency problem, you do the same thing. You bring it back to solvency.
Should it be specific? Do you need five years or seven years or whatever? I'm not sure of that. I'd leave that to the experts. But I think we've been fussing with this. It seems to be a limitation. It is a consequence now of some of the problems we have, because that alnd contribution holidays have put many of these sponsors into the predicament they're in right now. Some of them, I suspect, use this as an excuse. I've heard from actuaries, not this one, who have said they can produce just about any number you want, that the limit doesn't mean much, but then maybe we should look into that proposition.
I'm suggesting there shouldn't be an impediment, because what we're doing is penalizing our own system. So I agree with you. And by the way, I do agree that your consultation has been very productive. It has got the attention of the media. And I can tell you that despite some of the corporate witnesses you've had, pensioners are much better informed today because we're having these discussions, and I think that's imperative.
I'd like to thank Ms. Thompson from Air Canada. We agree with her proposition that this blanket ruling.... This is one of the problems when you're not prepared. I know the intention was to give relief to the pension plan, but this temporary measure was a sledgehammer when we needed a scalpel. Certainly Air Canada needed some special consideration, but when you look at the super group of seven, some of them--and one of them I'm very familiar with--at the same time they put in their annual reports that they were going to adopt a ten-year plan with a letter of credit, announced an increase in dividends. They showed the largest liquidity they ever had of $3 billion. They bought back $1 billion worth of shares and they made a major acquisition of a retail chain across the country. And I ask you, wouldn't that money have been better placed in the pension fund?
Okay. Well, I'd encourage you to consult with the premiers or the particular finance ministers.
Finally, Mr. Georgetti, during our consultations we heard from many of your member retirees that when they retired, they had no clue as to what their pension was or wasn't going to provide to them in their retirement, and I suggested on several occasions that perhaps that's a role the union could play. We also heard from concerns from retirees that the unions were only representing their active employees right now, and not the retirees.
I am more focused on what you are proactively doing for your employees who will retire in the next year or the next ten years. What are you doing proactively in terms of advising them on how to prepare for their retirement? Is that a role that the unions could, or should, be playing?
I can't answer the specifics of that. As I said, all our major affiliates are very proactive on pension consultation and pension education. In fact, the Canadian Labour Congress set up an association, called the Shareholder Association for Research and Education, that publishes information on not just their specific pension plans, but on the broader issues of pensions.
I also understand that the issue of pension financing, as I'm sure you've heard through your hearings and in the obfuscation from employers, etc., does become very confusing on smoothing and actuarial evaluations and net present values, etc., and the system is very complex, but let me tell you something: most Canadians know what their Canada pension is. They get a statement every year that tells them what their benefit is going to be. Again, to reinforce, I think that's what we should be pursuing, but the complexity of pension financing, Mr. Menzies, as you heard yourself, needs to be addressed and simplified. People need to have it.
However, we are active; in fact, I have a full-time staff at the congress, and others, just to deal with the issue of pension.
Thank you, Mr. Chairman.
First I want to thank all the people who made presentations today. In my opinion, that series of presentations has made the greatest contribution to the advancement of our work to date. They were full of nuances, and we see that the subject is starting to be addressed in detail. The intergenerational fairness aspects raised by Ms. Carbonneau must be part of our thinking.
I would ask Mr. Georgetti to talk more about the notion of insurance, which I think is a basic element. Some countries, in particular Japan, Sweden, Switzerland and the United States, are tending toward better insurance of these systems, whereas it's the Netherlands that was mentioned. These countries have managed to avoid this problem through a much more elaborate regulatory structure.
I would like to ask Mr. Georgetti to talk more about his notion of insurance and to say how it could help people reach retirement now. Then I would like to discuss that notion of intergenerational fairness.
Thank you, Mr. Mulcair.
On page 24 of the brief we've circulated, we have a table from the OECD that summarizes the pension insurance arrangements in various countries.
Canada has only one jurisdiction, Ontario, with a very minimal pension insurance system. That province, Ontario, just had a commission that recommended that the insurance program be increased and that the monthly benefit level be increased to $2,500 a month.
Our view is this: for all the important things in their lives, workers are required to have mandatory insurance. It is required for their houses and for their cars, and even to work. An employer needs to make WCB and EI contributions, even though half the time workers can't get it, but that's another issue.
We think that not having an insurance program for people's pensions, which are probably the biggest assets they have after their houses, is a major flaw in the public policy framework in Canada, so we're proposing, as we do in the brief, an insurance program that would work in the same way that the Canada Deposit Insurance Corporation works for credit union deposits and bank deposits. In those cases, if your financial institution declares bankruptcy, there's a program there to protect you.
We think there should be a similar program for defined benefit pensions. We think the program should be robust and should prevent employer fraud and fraudulent use. Several other countries have these programs. If we had this program, we wouldn't have the level of fear in Quebec and in English Canada that we have right now.
I think I very clearly stated that we are more in favour of a legislative approach such as that of the Netherlands. The mandatory establishment of supplementary pension plans at all businesses can be an extremely appropriate arrangement because it makes it possible, among other things, to take into account the situations of various classes of workers in a much more detailed way. Allow me to explain. I know that the public plan for low wage earners manages to cover a good portion of their previous employment revenue, which is less the case as you move away from these minimum thresholds.
So I think we can build in a much finer way using, for example, sectoral and inter-corporate approaches. Currently, for many workers, the public plans cover such a small percentage of their previous incomes that, if we considered enhancing the public system, we would have to have an extremely significant quality seal which would necessarily cause a burden to be carried over to the generation now entering the labour market.
Particularly at a time of demographic imbalance, this is something that must concern us socially and make us look for other solutions. It is true that we are having trouble negotiating pension plans, and that's why we think we need to be supported by an act in order to require that such plans be required to be put in place in all businesses. Once that requirement is met, that allows much more leeway to find types of protection that are more suited to the many and various situations of the various classes of workers.
We are prepared to say that the enhancement of the CPP looks like the best model now. One of the things we insist on, and I think you heard from the Premier of Ontario asking for it, is a pension summit. We think that this is where we could deal with these particular issues.
Concerning the enhancement of the CPP, the CPP is something we already understand. Perhaps it's something that would evolve. Maybe you start with a CPP enhancement and then go from there. We think this has the probability of solving many of the other problems that I've heard this morning--that is, what about the onus on future generations? I think that within the CPP we can look after that. We have to look for our children and grandchildren to be the people who get the reward.
I think the CPP enhancement, however you do it, should include a provision whereby it could be the refuge, if you will, for the wind-up of other pension plans. You would have a provision, for instance, for the Air Canada plan at the right junction to move over, with whatever degree of insolvency it had, and enjoy a refuge for a period of time, or maybe in perpetuity.
That might be an interesting concept. Clearly the issue needs to be looked at further, from the testimony we've heard.
However, my question really goes to that fine line between contribution during the course of a working life—whether it's through a union, the government, or the CPP—and moving to a universal pension plan: the fine line between everyone simply paying taxes and some of that tax revenue in the government going to all Canadians at a certain time of their life.
There is a philosophical difference there, and I wondered if you would care to comment. Basically, people contribute to pension plans now through their work, whether it's from the employer, the employee, a combination, or through the government plan. However, the concept of a universal pension plan may actually go beyond that. Is there a concern that it then just be a tax?
Thank you, Mr. Chairman.
I want to welcome the witnesses and thank them for their contribution to our debate this morning.
Of course, there are a number of questions. We know the role that DBRS played as a bond-rating firm in the choice that was made by the Caisse de dépôt et placement du Québec. We know the confidence that was placed in DBRS.
Do you think these bond-rating firms should also be accountable for their opinions? If so, how? They're in business and they have a responsibility. If they were to be accountable, how could they be?
That's an excellent question. I would tell you that, barely a few weeks ago, we were thinking about the crisis, and the entire issue of bond-rating services was a prominent feature of our debate. There does not appear to be any framework for supervising them in any way whatever. This is a concern for us.
I admit that, without having completely answered the question, we considered the role that an institution like the Bank of Canada, for example, could potentially play in this type of oversight. The existence of these bond-rating agencies—we saw this in the context of the entire commercial paper issue—creates a false sense of security that can have utterly disastrous effects on many social safety plans or pension plans.
So, in that respect, we are in favour of a form of oversight of these bond-rating agencies, at least through regulatory authorities, and we want to advance our thinking on the role that could be played in this regard by the Bank of Canada.
If you don't mind, Mr. Del Mastro, at the table we have a former CPP chief actuary.
Using the rough estimates we've done, if the current contribution rates per worker and employer are 4.95% and we want to effectively double the benefit, a conservative assumption would be that you'd have to double the contribution. What we've argued is that the CPP, unlike the RRSP industry, has really good value: it's portable, it's inflation-protected, it's suitable for the current economy. If we allowed it to gradually replace the under-performing RRSP industry, workers are going to be able to retain more pension income instead of paying it out to executives on Bay Street.
But as far as the precise calculation is concerned, I think Bernard Dussault is probably best positioned to answer that.
Thank you, Mr. Chairman.
Thanks to the witnesses for being here.
Ms. Carbonneau, I listened to you and I don't know whether you're version is the same as that of Mr. Georgetti. Everyone agrees that, when we retire, we'll receive benefits from Old Age Security, the Canada Pension Plan and the Quebec Pension Plan.
However, we're talking about the third pillar. Some will be covered by a third plan, while others won't. Today we're talking about finding another way for everybody to be covered, both people who have a private plan and those who do not. In fact, for people planning their retirement, the Canada Pension Plan, the Quebec Pension Plan and Old Age Security will not be enough.
Are you in favour of the alternative proposed by certain individuals which essentially consists in increasing CPP and QPP premiums? I didn't hear your organization say it.
The Canadian system has three pillars: the Old Age Security pension, the QPP, the CPP and corporate plans. This isn't a bad system.
Currently, the weak pillar is corporate plans, which do not cover 40%—and less than 40%—of the labour force. We could always increase the second pillar, the Canada Pension Plan or Quebec Pension Plan, as some people have suggested, but that would cause other problems. France has a large plan and it has had these problems at certain times. A large universal plan raises other kinds of problems.
Fundamentally, if we consider the OECD countries, having three different pillars is really a good retirement system. It's currently the third pillar of our system that poses a problem.
Maybe just before I start, I will acknowledge my colleague across the floor sitting in a wheelchair in recognition of the plight of the disabled. I think it's a good move. Thank you.
Might I suggest just a couple of things to our panel? Thank you very much for coming in. I might perhaps preface my comment by saying it is sad in one way, but hindsight is 20/20 for almost everybody around the table here at some point. You know, five, ten, twelve, maybe even three or four years ago, when things were rock and rolling in the economy, we didn't seem to have this same concern, and now all of a sudden we have that concern.
Do we need a wholesale radical reaction to the circumstance right now? Or do we recognize that we are cyclical in nature as economies and we have to find a way to transition through this difficult period?
Mr. Braniff, what are your thoughts? Is this time to reinvent the wheel, or is it time to fix the wheel?
First of all, the Common Front has been focused on this since 2003. We saw this coming. We had no idea of the impact, of course.
The media and perhaps some of us are calling this a tsunami or some kind of pandemic. This is not an act of God. These are man-made circumstances, and there are ways of correcting them. I think we have the brain power to position Canada as a leader in this area—and it's already a leader in many respects, with CPP, for instance.
For me, panic is not an option. I think we have everybody's attention, and wouldn't it be the appropriate time to create a summit? Because as you keep pointing out, you only have 7% of the pension regulation in this room. The provinces are missing, and they're coming together with some pretty good ideas. B.C. is going to go alone and you might not like what it is going to do. Wouldn't it be a shame that the federal government would have to reinvent everything again?
I side with you. Let's be very calm. Let's be deliberate. Let's make one step at a time. Let's not think that we can solve it all in one swoop, but let's make sure we made the right start and we put in place the kinds of systematic reviews we need as circumstances change. I think we've learned from this crisis that we can be surprised, and sometimes we can be surprised on the delightful side.
I have one characteristic that is probably unique in this room: I've been on pension for 25 years, and it's very nice. You should try it.
Voices: Oh, oh!
Mr. Dan Braniff: I don't know if I've answered your question.
Mr. Georgetti, you and previous witnesses and people at the table here have raised the issue of a potential expansion of the CPP. I'm looking for the balance.
I think most people in this country would agree we don't need a cradle-to-grave philosophy with absolutely no incentive and no way to be productive and move ahead in a competitive global economy. However, we do have to find a way to be compassionate and care for our society when we have circumstances that are beyond people's control.
Quite frankly, and certainly don't take any offence, I find your argument well representative of the people you represent. I think it's a fair position, but I think we also have to balance that with the rest of society. I think this is the policy debate that is definitely worth having, but I think we have to be honest and consider the cost, the benefits, the rewards, and the gains for all sides.
Have you considered the immediate cost to the economy of addressing that, for competitiveness, etc.?
Thank you, Mr. Chairman.
Today we're talking a lot about pension protection for present and future generations, about regulatory problems. You know that the Government of Canada regulates pension plans under federal jurisdiction, but the provinces regulate the others, which represent the majority of pension plans.
We're having a debate in Parliament about a national securities commission that would be established in cooperation with the provinces. In the pension field, the regulators or the regulatory agencies in the provinces have an important role to play.
Ms. Carbonneau, what do you think about the current provincial regulation? For us to have a more effective regulation and for us to be fair with the various provinces, should they cooperate more? Would the federal government have a role to play regarding a more uniform regulation of pension plans under provincial jurisdiction?
Do you have any comments on that?
You're raising various points. You touched on one very delicate matter, the idea of a single securities commission for all of Canada. That's a point of view that we don't share at CSN and, in my view, that a vast majority of stakeholders in Quebec don't share.
There's definitely a way to discuss the matter, to try to cooperate in order to launch a movement. I'm seeking a fairly fundamental reform of pension legislation, but I don't believe it's simpler to design it at a single level of government. I think we have every interest in preserving the provinces' jurisdiction in this regard. However, I mentioned the fact that, in 1985, I believe, the federal government amended its legislation on pension funds, which subsequently allowed some interesting developments in various provinces, in Quebec in particular.
I don't think it's a matter of level of government, but of political will and of knowing how to take the time to stand back and really rethink matters in much greater depth. Another speaker earlier emphasized that we were talking a lot about pensions because we were in a crisis. I indeed think that may be a more current topic in a period of crisis.
However, in seeking a more fundamental reform of pension plans, I would say that, over the past 10 years, we had difficulties when were in a period of economic prosperity. For example, we saw the decline of the defined benefit pension plans, which offer the best security for workers. We saw them decline in a period of prosperity. Quite apart from current economic circumstances, we increasingly have an industrial structure involving small work places where people have to learn to deal with that reality.
I'll give you an example of success in Quebec where we've managed to negotiate an arrangement in the early childhood centres, which have 10 to 15 employees, and where there has never been a way to establish an adequate pension plan. So we developed a sectoral approach as a result of which, today, these people have protection that they could never have anticipated in other circumstances. That's why I think that, in a desire to reform pensions, we must look at new issues and approaches.
I will continue our examination of the Liberal Party's social conscience.
Yesterday Mr. John McCallum in The Globe and Mail said that as far as he was concerned it might be possible to have voluntary increases in your CPP contributions, which is interesting, because he is saying that the market can take care of things, whereas labour is in front of this committee regularly and business has been in front of this committee regularly, both saying we require some collective action on this issue.
The Liberals seem to be alone in believing that the pristine market, the same market that produced the current meltdown, is going to produce somehow a miraculous result for pensioners.
Do you agree that this should be voluntary? Or should it be compulsory?
Ms. Carbonneau, I want to get back to you so that you can complete your presentation. You raised one of the most important points. We are at a tipping point. We realize that we haven't been on the alert in the past. That's a simple observation; that is to say that the margins of the system we put in place must take into account eventualities such as the current financial crisis.
Too many already retired people are now seeing their incomes decline. If there's no protection from inflation, even if inflation is only 2% or 3% a year, pensions will be reduced by half in a number of years. Even in collective agreements, it's very often sneaky because 1% or 2% of retirees' pensions are eaten up each year.
You talked about intergenerational fairness, but do you nevertheless think we could increase basic coverage and obtain better coverage for those who are already retired? Remember that a very large number of retirees are now living under the poverty line. Can we possibly think, if no one else but working people pay, that we could enact a slight increase in order to provide better support for people who are already retired?
Thank you, Mr. Chairman.
Ms. Carbonneau and Ms. Joncas, I would like to continue along the lines of my colleague's question. Ms. Carbonneau, you talked about the systems of other countries, such as the Netherlands, Australia and England. First of all, I would like to say that the idea of holding a national pension summit is a very good idea because perhaps that may give us a chance to further the research you've done on comparisons with other countries. However, the situation is not easy because money doesn't grow on trees. Some people take risks in order to increase the funds, but at the same time they don't want contributions to be too large, but they want the benefits to be good.
In your comparisons with other countries, have you considered both aspects, that is to say contributions and benefits? We can contribute more or we can cut the benefits, but I don't believe we can do both.
As you say, money doesn't grow on trees, but the more money you accumulate—whatever its form—in a plan, the more money there will be at retirement. The important thing is to have good protection mechanisms to ensure that the risk is well shared between all those who contribute.
In a public plan, the burden of the deficit weighs on all those covered by the plan. All Canadians thus bear those costs if things don't go so well. It's spread over all the generations, as a result of which the costs are lower and spread over time. Ultimately, however, the costs are the same, whether they're paid by one or two generations.
I want to be sure I answer your question right. In some countries such as France, pension contribution amounts are much larger than here. The income replacement percentage is much higher than that offered by the Canadian system, if you consider only the public plans. When you compare Canada with the other OECD countries, what is mandatory and provided for by the public plans—whether it be the OAS or the Canada Pension Plan—is often much lower than elsewhere. It's lower when the contributions are voluntary, and we reach replacement levels far lower than others.
We have research that indicates the rate of job turnover for this workforce is dramatically different from the rate of job turnover when the defined benefit pension system was built, so that's a major problem.
As far as averages, I can't quote averages from the brief we have; that information's not with us.
As a way of answering your question, I would say one of the reasons our organization is supporting a dramatic improvement in the CPP is that it would solve the issue of portability of pension benefits across jobs.
Thank you, Mr. Chairman. I would like to put a question to Mr. Andersen, who is an economist.
Earlier, in response to my question on the Caisse de dépôt et placement du Québec, Ms. Carbonneau agreed that reforms were necessary with regard to risk assessment in that organization. You made a presentation on the Canada Pension Plan Investment Board. You mentioned that they engaged in speculation inconsistent with the mandate prescribed by law. You're also asking that those shares be sold as soon as possible since they involved too much risk. The impression one gets is that you're suggesting a short-term correction.
Don't you think that the more permanent remedy would focus on the bonuses paid to all those who negotiate the loans everywhere? Representatives of the Canada Pension Plan Investment Board appeared before us. We know that millions of dollars are paid in bonuses to people who make investments in those organizations. So they are definitely paid based on short-term yields, and that involves risk assessment deficiencies.
Don't you think that the problems stem precisely from those policies? In response to our questions on the subject, we were told that these are the standards of the industry. They defended themselves by saying they weren't the only ones who applied this system. Those who invest for the various plans receive performance bonuses. Can you tell us whether that's what's causing the problems in the system righ now?
Thank you for the question.
I'd like to start with a short word. In the investment industry, the cardinal rule that you have to follow is you have to know your client. So by definition, there are 17 million contributors to the CPP you can't know. That means that right from the get-go, you're outside the parameters of what I would call a legal framework. The CPP board I think maybe has a conversation with somebody in the finance division in various provinces. He's the agent on behalf of everyone. Whether or not he's an effective agent, that's another matter; that's for judgment.
Going to your point about incentives, they can be good, but they can also draw you into conflicts of interest and into making mistakes. One current mistake that is one of a number of them--it's in a line of these--is that the CPP board recently, at the end of March, announced that it was going to do a takeover of an Australian company called Macquarie Communications. Macquarie Communications is a P3-modelled kind of company that trades in the open market, and the takeover was to be and is to be at $2.50 Australian. They're seeking 100%. I'd say it's a hostile takeover. That stock traded during the course of this last six months in the vicinity of about 95 cents. The CPP board knows that, but they went ahead at a premium price, which is more than double.
The second thing is they also know that Macquarie Group as the vendor has a tarnished reputation. A group in New York called RiskMetrics Group published about a year ago a scathing assessment of the Macquarie Group model and Macquarie people.
I'm going to take the final round. I want to follow up with Ms. Thompson on the Air Canada issue.
In your presentation, under “How We Got Here”, you identify both structural and cyclical challenges. You talk about the insolvency in 2004 and the problems of the hedge fund owners, but you also talk about the worldwide crisis in the capital markets.
It is a challenge determining where we should go in terms of structural and cyclical challenges. As a member of Parliament, obviously I fly all the time and I see Air Canada employees all the time. What they say to me is, “I've worked 30 years for the company. I've put my life into this company. I've paid into the pension plan, and I deserve to have a pension.” With the 2004 insolvency, their common complaint--and you've heard it before--is that there was a transfer of assets to ACE as a result of that, and that there were some very large payments to executives or shareholders.
I'm not disputing that, but as a member of the government trying to address it, I can't redo the 2004 agreement or the consequences resulting from it. We have to try to deal with the situation that we have now. That may have been unjust; I'm not going to pass a judgment on whether it was fair or not. But what do you recommend we do as a government to address that person and ensure that he has a pension when he retires in the next five years?
You talked about recognizing the need for extraordinary measures. I think I have a sense of what you would recommend we not do, but what would you recommend we do to address both the cyclical challenges in terms of the markets, and also the structural challenges in terms of the challenges Air Canada is facing?