:
Thank you for inviting us to present at today's meeting.
There are many issues, in fact, that we can discuss under the general theme of women and pension security, ranging from the high poverty rates among women living on their own to the longer average life expectancy of women compared to men. However, in light of the time restrictions, we will focus on the issue of employer-sponsored pension coverage in Canada, and particularly on the difference between men and women working in the private sector.
We note that while statistics indicate that the percentage of women covered by a private pension plan has increased over time, there is still a substantial gap between women and men. As we'll discuss, we believe this gap is caused by a combination of the industries women tend to work in and the percentage of women working part time. We believe there is a need to take steps to increase pension coverage levels for women, and for Canadians as well, and we have some suggestions on how to accomplish this.
Many studies have shown that the number of women covered by employer-sponsored pensions has been rising over time. In 1978, less than 15% of the female working-age population were active members of workplace pension plans. The number has increased to over 20% in 2008. This trend is driven both by increasing participation of women in the labour force and by revisions to pension legislation that require employers with pension plans to include part-time workers.
At first glance, the gap between men and women has narrowed substantially over the past three decades. Indeed, the 2008 numbers from Statistics Canada show that the overall coverage is very similar for male and female workers. However, if we exclude the public sector and focus only on the private sector, the coverage among women, at 23%, remains significantly lower than among men, at 32%.
There are two main reasons. First, female employment in the private sector tends to be more concentrated in the service sector, which consists of a lot of small firms without pension plans. In contrast, a larger proportion of male workers are employed in the goods-producing sector, which tends to have larger and more heavily unionized employers, who are, therefore, more likely to offer pensions to their employees.
The second reason, perhaps a surprising one, is the difference between male and female workers within industries. To give you an example, in 2008, 42% of men working in the manufacturing sector had pension coverage, compared with only 33% of female workers in that sector.
In sum, to increase pension coverage among women working in the private sector, we need to answer two fundamental questions. First, how can we increase pension coverage in small and medium-sized companies in the service sector? Second, what type of pension system would be most helpful to non-standard and part-time workers?
I will now turn things over to Martine, who will discuss some possible solutions to increase coverage in light of the situation I have just described.
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As we think about the solutions to increase pension coverage and the adequacy of pension savings for women working in the private sector, we need to consider the following factors.
Many women face interruptions in their working career, generally to take care of children and other family members. These interruptions translate into fewer years of potential pension coverage for women who have access to a pension plan.
As women leave and re-enter the labour force, they most often transition into new jobs. This means that new waiting periods must be observed before they qualify for membership in a new pension plan.
We know that part-time work is more prevalent among women than men. Part-timers may accrue significantly lower pension accruals during their working period, which can easily range from a decrease of 20% to 40% compared to full-time employees.
Women still have a longer life expectancy than men at retirement, which translates into the need to accumulate additional pension savings. Under current economic conditions, women may need to save between 8% and 10% more than men to maintain the same standard of living during retirement.
As we examine ways to increase coverage for women in the private sector, we need to consider new pension models that offer flexibility to accommodate women's working patterns. Solutions should also consider the longer life expectancy of women as well as the need for portability. Increasing pension coverage is of course more urgent for smaller firms, as well as for industries that do not offer pension plans.
Traditionally, the vast majority of pension plans have been either defined benefit or defined contribution plans. There has been a growing concern among employers about the financial risks associated with DB plans, which has been amplified by the current economic conditions. In response to this concern, many companies have now closed their DB plans. While some have replaced them with DC plans, there are concerns that many such plans will not provide an adequate income replacement stream for retirees. These concerns highlight the need for flexibility in developing possible ways of increasing pension coverage and suggest that plan designs beyond the typical DB and DC spectrum be considered.
One possible solution to the coverage issue is to expand the public pension system. For example, Alberta and B.C. are proposing the creation, either nationally or regionally, of a voluntary supplementary DC plan on top of the existing Canada/Quebec Pension Plan. While there are many ways to add another layer of C/QPP, the fundamental idea is to implement a provincial or national plan targeting Canadians not covered by an employer-sponsored pension plan. While the current public pension system, including OAS, GIS and C/QPP, should replace between 30% and 40% of income for average workers, the additional layer could potentially increase their income replacement ratio to a range varying between 50% and 70%.
Another potential solution is to focus on increasing coverage and pension savings among small and medium-sized companies. One way to do this is to encourage the formation of multi-employer plans that can be industry or trade based. The advantage of multi-employer plans over a second tier of C/QPP is to add flexibility and to actually meet the special needs of employees in different companies or industries.
Under a DC approach, the employer would contribute a minimum fixed amount with a corresponding employee contribution. For example, a 2% contribution from both the employer and employee could bring the income replacement ratio for the average worker to a total target of approximately 50% to 60%, including OAS and C/QPP. Employers would have the opportunity to contribute additional amounts as they wish. Additional employee contributions would be encouraged by the fact that employers would be able to make matching contributions aligned with each employer's desire to contribute. In addition to increasing pension coverage and savings, women participating in these plans would be able to contribute during their years of unemployment as well as to complement their pension savings during their part-time working years.
These larger funds would benefit from lower management fees and professional investment management oversight.
Partial and gradual annuitization should be offered among these plans to guarantee an income during retirement. It could even be mandated to a certain extent to ensure a minimum guaranteed income at retirement. By gradually converting a small amount of the accumulated pension savings each year into a lifetime annuity, a guaranteed income would be built over the years. Unisex rates should be used in the purchase of these annuities.
An alternative to a DC model would be to implement a plan with a target DB where risks are pooled among plan members. Under this approach, the employer contributions would also be limited to a fixed amount. In the case of asset insufficiency, benefits could be reduced. This model allows for the pooling of longevity risks as well as for the pooling of investment risks between generations. These plans also benefit from lower management fees and professional investment management oversight.
There is clearly a need to expand pension coverage and increase savings for Canadian women working in the private sector. To achieve this expansion, we need to develop new ways for women to save for their retirement, as well as to alleviate for the lower pension savings due to the non-traditional working patterns.
In summary, the key elements to consider include increasing coverage through the creation of multi-employer plans or national or provincial plans, encouraging additional savings through adequate employer matched contributions, increasing pension savings through access to a pension plan in years of unemployment or part-time work, and providing access to larger funds to benefit from lower management fees and professional investment management oversight.
Thank you very much for providing us with the opportunity to address pension coverage issues for women working in the private sector.
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Committee members, my name is Jean-Pierre Laporte. I am a pension lawyer with the firm of Osler, Hoskin & Harcourt LLP, in their Toronto office.
I've been practising in the field of pension law since 2001. I was a member of the executive of the pension and benefits law section of the Ontario Bar Association. In that capacity I've assisted in the preparation of submissions to the Expert Commission on Pensions of Ontario. I've also written about pension plan issues. For example, I published an article with Mr. Sheldon Wayne on esoteric products such as individual pension plans, and also on plan administration issues.
My first contribution to the development of pension reform came in 2004, when I proposed for the first time the creation of a supplemental Canada Pension Plan solution to enhance coverage in Canada. I made this proposal in an article published in Benefits and Pensions Monitor, a trade publication.
Your standing committee has been tasked with the general topic of women and pensions. I have reviewed some of the evidence given by other witnesses to this committee and I do not think it is useful to go over the statistics that officials from various governmental agencies have already supplied to this committee. Rather, in the limited time that I have, I would like to share the concept of my supplemental Canada Pension Plan solution and why I think it is tailored to assist Canadian women in saving for their retirement.
We know that a very large portion of people working in the private sector do not participate in pension plans. At best, their employer might provide access to a group RRSP, a retirement savings plan. Group RRSPs never provide the certainty of a set pension amount in retirement. Also, very often the contributions made by employers under a group RRSP are too low to generate a sufficient pool of assets to ensure a comfortable retirement. Moreover, in a group RRSP, it is the employee who has the ultimate responsibility for managing the retirement contributions and investing them in the market. Finally, the financial products available under group RRSPs are often more costly on a unit cost basis than under a pension plan. This is because pension plans, especially large ones, can take advantage of economies of scale and do not have a lot of marketing costs.
What is the result? Women who work for employers who don't offer any kind of retirement plan are the worst off. The same applies to all the stay-at-home moms who are working but just not getting any T4 income. If they're lucky enough to be in a group RRSP--and I'm talking about those who are not in the home--they pay higher fees. They have to be financially sophisticated to manage their money or else ask for advice, pay for that as well, and hope that by the time they retire the stock market hasn't collapsed.
While I'm oversimplifying a lot, generally this is the lay of the land.
The supplemental Canada Pension Plan solution is designed to overcome all these issues and to ensure that pensions are provided to all Canadians, regardless of whether they work at home, in a small corner store, as professionals, as consultants, or even in a large company. The basic tenets are as follows.
First, why not allow Canadians to contribute in excess of the modest limits currently found in the CPP--this year it is $2,118.60 for an employee--all the way up to the limit found in the Income Tax Act for defined contribution plans? That limit this year is $22,000.
Second, let's use the existing CPP and EI payroll system that every employer has to abide by to collect these additional voluntary contributions from the employees and the employers and have them administered by an impartial arm's-length-from-government body such as the Canada Pension Plan Investment Board. The facilities and expertise are already in place. There would be no need to create a new bureaucracy.
Third, the CPPIB, or a sister board or sister agency, could then turn to the private sector and seek, through open and transparent bidding processes, the best investment management expertise that money can buy. The only difference would be that because of the huge scale of this plan, the unit costs that the financial institutions would charge would be a fraction of what an individual has to pay at the retail level.
Number four, we could also allow people who are not currently employed by anyone to contribute some more modest amount of money to the supplemental plan. There is no reason in my mind why someone who is at home looking after children should not be allowed to save for their retirement.
Number five, employers would have the option of making 100% of the contributions, or no contribution whatsoever--I'm thinking here of a very, very small employer that just doesn't have any money for anything else but paying minimum wage--or anything in between. This means that for small businesses that have trouble making ends meet and that are paying minimum wage, the supplemental CPP would not be an extra payroll tax. However, bonuses could be paid into the plan if the business has a good year; and employers, even if they don't contribute or if they opt not to contribute, would still be obligated to remit the employee portions if the employee decides to put money into the supplemental plan.
So let me talk briefly about supplemental CPP and women. This brings me to the final point. How would this reform help women?
For one thing, allowing a woman to participate in a pension plan even when she is not actively in the workforce is an important first step in building up adequate retirement savings. Moreover, having the professional staff of a world-class pension plan like the CPP invest the moneys instead of having someone who is busy juggling work life and home life is another definite plus, in my mind. Having the reform be purely voluntary also helps, because there would be no job-killing payroll tax for businesses that just can't afford to participate, but there would still be the opportunity for those who want to save to participate--the employees. We know that many women, unfortunately, have been relegated to less-well-paying jobs that fit within that category, so this reform would help them in a very significant way.
The tremendous economies of scale translate into huge savings for Canadians. Some preliminary calculations I have made suggest that each and every year, assuming a modest participation rate, Canadians would be able to put away another $10 billion into their own savings accounts instead of paying those in fees. And this is every year. The beauty of this is that it will not cost the taxpayer anything, because contributions to pension plans are tax deferrals; they're not tax expenditures. This means that while in the year the contribution is made there is less tax collected, as you know, when you get your RRSP refund in April, the money that has been contributed with interest becomes taxable when it is withdrawn from the fund. So it becomes really an accounting exercise. This is very different from the spending on social programs where, once the money is spent, it's gone for good.
So by pre-funding people's retirements, we are taking pressure off the generations of tomorrow, the taxpayers of tomorrow, our children and grandchildren. This means that we allow for more money or tax dollars for other worthy programs, such as child care spaces, better schools, and the list goes on.
I'll conclude my remarks here. Thank you so much.
:
I've been advising women's groups for 30 years. In the summer, we provided the Minister of Finance with our comments on the proposed amendments to the Canada Pension Plan as set out in Bill . So, in essence, I am also speaking on behalf of the 13 other women's groups in Quebec, including the Fédération des femmes du Québec and several other major groups.
I'd like to address three points. First of all, I'd like to refer to the Canada Pension Plan and to the proposed amendments to it as found in Bill C-51. I'd also like to address the proposed creation of a voluntary account, in the manner which was discussed earlier on by my two colleagues. Then, I would like to refer to specific demands from women's groups to enhance their retirement income. Finally, I would like to conclude with a few remarks on statistics which would allow for gender-based analyses to be carried out.
I have also sent to your analyst, Ms. Julie Cool, a brief we tabled before a parliamentary committee in Quebec, having to do with a change to the QPP. This document contains a great deal of statistics and information on women and pensions in Quebec. However, it has not been translated.
Bill C-51 seeks to cut pension benefits for all individuals retiring before the age of 65 by increasing actuarial adjustments. First of all, we are very worried by the fact that this legislation has received practically no media coverage and that no specific parliamentary committee was struck to address the issue, nor have there been any broad-ranging public discussions on it. We are convinced that it will disproportionately affect women rather than men. In Quebec, we know that women retire earlier than men, often because they stop working to care for a spouse, an older person, someone who is ill, or a parent, or because their spouse is retiring and they decide to retire at the same time despite the fact that, in general, they are younger than their spouses. We therefore see no reason for cutting benefits. We believe that would in fact lead to greater poverty for seniors, especially women.
We are not very enthusiastic about the voluntary contribution measures precisely because they are voluntary. Moreover, we believe that it will become an additional tax advantage for the wealthy who are already saving enough for their retirement whereas middle class individuals who contribute a modest amount to their RRSPs do not do so enough to ensure continuing income upon retirement. They would still not be contributing enough to make a difference.
Rather, we support improving mandatory premium-based public plans like the CPP and the QPP. We believe once this becomes the modus operandi for employers and staff, people will adjust. We would also like to note that our contributions and benefits, here in Canada, are far lower than those of European countries, for instance.
Let's get back specifically to measures to assist women. We have also found that only a public plan can consider the fact that people do contribute to a country's economic growth through unpaid work.
There are already three ways to take this contribution through unpaid work into account within the Canada Pension Plan and the Quebec Pension Plan. First of all, a woman who is responsible for a child under the age of seven and whose contributions are less than her average contributions over the course of her career can exclude these years from her pension calculations. We believe that this right of exclusion should be converted into an inclusion, in other words that pension credits should be allocated automatically; we would suggest they represent 60% of the maximum insurable earnings, because those who benefit the least from this measure are, for instance, women with several children and who, therefore, tend to re-enter the workforce less, or often work part time. The automatic allocation of credits would meet the needs of these women, based on the number of children they have.
We believe the same should apply to individuals who stop working to care for disabled or ill adults, a task which is often women's work as well, in 75% to 80% of cases.
The second measure regarding women has to do with surviving spouses' pensions. In Quebec, they are more generous than elsewhere in Canada, but on the other hand, the orphan's pension is lower. In our brief, we would suggest decreasing surviving spouse benefits to help fund the measure I will refer to in a moment. In the past, surviving spouses' pensions were designed to consider the fact that when women got married, they would have children. So, the purpose was to consider the fact that women cared for children. But, increasingly, there is no automatic correlation between marriage or cohabiting and having children. So, we prefer measures that directly recognize the work women do with their children.
Finally, the third measure which would put women's pensions on a somewhat even playing field with those of men is the sharing of credits which is governed by family law in the various provinces. We believe that that is a good measure. It ensures fairness within a couple. That said, in Quebec, we have data on the number of cases of sharing and what that means and for whom, yet in the documents I consulted from Human Resources and Skills Development Canada—
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The problem lies in the Income Tax Act, which says that you cannot have a pension plan unless there is an employment relationship, meaning T4 income. If you have someone working in the home, someone who is not remunerated, that person is shut out from the whole registered pension plan world. One quick fix is to scrap this antiquated rule and simply allow women who work in the home to participate in a pension plan.
The question is, where are they going to find the money to put into the pension plan? That is a broader problem, but at least if they have access to the plan, they can save for their retirement. Right now they're completely shut out; they have to rely on their spouse's pension, if he or she has one, and survivor benefits.
The supplemental CPP is not a silver bullet; it's just one way of tackling the problem. However, under that scheme, deemed earnings could be used, or there could be a lump sum amount, similar to what you have for tax-free savings accounts right now, with a maximum for each year that is indexed to inflation. They could say that you could save up to, let's say, $5,000 in the supplemental CPP, and that builds up every year. You could at least create a pension stream for yourself.
:
Thank you, Madam Chair.
Welcome everyone.
My first question is for Ms. Sohier.
You spoke about poverty among elderly women, about the fact that a woman's life expectancy is longer than that of a man, and about protecting pension plans for women. These are questions that we all want to address. In fact, we want to be able to make recommendations to improve the situation of women with respect to the CPP. We were discussing private plans. You referred to transportable models, and in addition, provincial and national plans. However, this was not completely clear.
I imagine that contributions will come more or less from everybody. We know that women's situations do not permit them to contribute very much to plans, including RRSPs. You and many others have spoken of a lack of job security, part-time work, and so on. You are putting forward interesting solutions, but are they feasible?
:
The proposal comes from the Department of Finance of Canada, which consulted the departments of finance in each province and territory. So in a sense, there has already been preliminary approval on the part of the provinces.
As concerns enhancing the Canada Pension Plan, we can see that two-thirds of the provinces includes Quebec, if you carefully read the texts concerning the CPP.
Of course, Quebec does not represent one-third of the population, so it does not have a veto, but it is still part of the consultations. What Bill C-51 says is that henceforth, changes may be made by regulation. In this case, there would be approval by two-thirds of the provinces, but this would exclude Quebec.
So indeed, Quebec would also have to legislate separately.
First of all, I'd like to thank everybody appearing here today as a witness. My questions are addressed to the two of you who came from Watson Wyatt Worldwide.
As you know, in January the government launched a lengthy consultation to improve the legislative and regulatory framework for federally regulated private pension plans. Also, a few weeks ago our minister, Minister Flaherty, announced several reform proposals that came out of this consultation. I have three questions relating to that, and then you can use your time to see how much you can contribute towards those three questions.
First of all, can you comment on and explain your involvement in this process?
Second, in your consultation paper you also recommended that employer contribution holidays be limited. In my understanding, this was one of the recommendations that the Minister of Finance took into consideration. I would like you to expand on this, please.
Third, can you outline and comment on the other measures that the reform proposal package included?
:
Again, I apologize, because I don't have this consultation paper in front of me. I didn't think that was the object of this discussion, but I'm more than pleased to comment in general.
At Watson Wyatt we believe we need to come up with new, flexible, innovative arrangements. We don't believe the burden should be only on employers. Some employers are small and do not have the capacity to actually come up with and implement a defined benefit plan, which can turn out to be a mini-insurance company over the long term. We've seen that in our country and we've seen it in other countries. Sometimes the obligation of a pension plan becomes larger than the company's assets themselves, and that can create a big burden on the company for generations to come.
We believe that the pooling of risk is key in setting up new arrangements. Pooling of risk means that you take a group of members and bring them together into a pension plan. That's the object of our paper here; it's what we call a target benefit. By setting a defined benefit target, you aim to get to a certain level of pension.
You may not get there, and we know defined benefit plans are facing issues with their financial positions right now because of the current economic situation. We know that a target is a goal that you should have, but it may not mean that you get there, and members need to understand that they also need to be flexible in terms of getting a certain level of pension and also having the flexibility to sometimes reduce benefits if you cannot achieve your target.
We believe you need to set up new arrangements like that so that risks are pooled among members. By getting a group of members together, you can pool longevity risk, as well as some investment risk, among generations.
The idea is that if you are in a small business and you can barely make the payroll in paying minimum wage, typically you would not be a candidate for a registered pension plan. You would not even offer a group RRSP, or you might where it is only employee contributions and you administer it on behalf of the members.
So the supplemental CPP would allow those types of companies to say that they, the employers, would not contribute anything because they just don't have the money, but that they would collect whatever contributions the employees want to make. Instead of putting the contributions into their personal RRSPs, the employees would put them into this plan and the employer would collect them for the employees and remit them to the Receiver General. They might also reserve the right, if they have a good year, to voluntarily pay a bonus into those accounts as a bonus from the company.
There are plans out there called deferred profit-sharing plans that work roughly along those lines. This supplemental CPP reform is flexible enough to allow that type of structure as well as the ongoing regular contributions.
:
Let me get back to your first question.
When we look at the current system, the entire pension plan system, what we are talking about by adding a second layer to the CPP is that we are targeting the mid-income individuals or families who do not usually contribute the full amount of their RRSPs due to various reasons. Maybe they don't have the money or they are spending too much. There are many reasons for that. What we observe is that we actually need to somehow help that group of people to save more for their retirement.
In other words, yes, you are correct, for small and medium-sized firms it could add a little bit of cost to them, but at the same time we are trying to shift the saving pattern, helping them to save a little bit more, and later on they may get the benefit when they retire.
This is the group we are trying to target. We know from statistics that we need help from the employer side, because even if you give the employees a little bit more money, instead of putting it into saving accounts they would probably spend the money and not save for their retirement. That is the reason we have to set up a system to encourage the employees to save. That's the whole idea.
:
Thank you very much, Madam Chair.
Thank you all for being here.
A constituent brought a problem to my attention last week. Currently, retirees who decide to return to the labour market, either because their pension plan has a significant drop or because they need to do so, can earn up to $5,000 a year without being penalized under the Guaranteed Income Supplement or the Canada Pension Plan.
However, if that person saves money and reaches the age of 71, they must flip their RRSP into a RRIF. Consequently, that person has to withdraw from that fund a set amount of money every year. The constituent who came to meet with me had to take $5,000 out of her RIFF. She had to pay taxes on that amount. That is fine, because she hadn't paid any in the first place. However, that $5,000 was added to her income, so she lost all the benefits she previously had received.
As a result, because she had put aside savings, she was penalized compared to someone who had not set aside any savings, who returns to the labour market and earns $5,000. I must say that this situation disturbs me somewhat.
Ms. Sohier, you said that your group took part in consultations with the Department of Finance on the issue of pensions.
Ms. Rose-Lizée, did your group also take part in consultations with the Department of Finance?
Mr. Laporte, I would like to know whether you are also able to take part in that exercise?
:
Thank you, Madam Chair.
Certainly it will be a long time before I feel that I have expertise on or an understanding of this. It's a fairly complicated issue. To be honest, before I entered Parliament I had no idea that there even was something such as OAS or GIS. I had always heard the Canada Pension Plan was going to be broke so I had better not count on it.
So it has been actually quite pleasant to hear that not only do we have OAS and GIS for people who are really struggling, but also that the Canada Pension Plan isn't going to be broke. That was certainly good news and that is probably not out there. That really speaks to me. I consider myself to have some knowledge about a number of things, but it really talks to the idea of financial literacy. In this case, we've saved like mad, because I didn't think there was anything else there.
But I'd certainly like to talk a little about that particular issue and, really, how do we ensure people know and are thinking.... I'm not sure if I like the comment that we have to force people to save for retirement. I think people need to be making choices around those sorts of things.
So first of all, I'll open that up for some comments.