Pension Plans On Life-Support

February 20, 2012

Statement by Kevin Rebeck, President MFL

Organized labour is in the middle of a struggle to expand the number of workplaces that have a worthwhile pension plan to make sure that working people have adequate income once they retire, and to preserve existing pension plans in Canada, notably defined benefit plans in both the public and private sectors.

Prime Minister Harper’s only suggestion is to create another voluntary contribution plan to make up for the fact that most working Canadians aren’t able to contribute to a pension plan at work. They aren’t able to because employers won’t cooperate in their creation and they’re dismantling the ones to do exist. The trouble is, we already have an ineffective voluntary contribution system that is known as a Registered Retirement Savings Plan (RRSP).

Of the nearly 860,000 tax payers in Manitoba, less than 25 per cent are able to contribute to an RRSP plan. And why is this? It’s because working families have been running like a hamster on a spinning wheel just to earn enough money to have what amounts to be the same purchasing power they had in 1980. Most families are not able to put a lot of money aside and covering the usual expenses related to raising a family.

This fits into the national scenario that sees only three per cent of income making its way into an RRSP plan. In fact, today, there is more than half a billion dollars of unused RRSP contribution room in Canada, emphasizing the reality that voluntary contribution of untaxed income into an RRSP plan, or something like it, simply does not work.

Not being able to contribute to RRSP plans is not unique to low and middle income earners. In Manitoba, only 45 per cent of wage earners being paid $80,000 or more each year make contributions. The fact is, voluntary contributions to tax sheltered vehicles hasn’t worked in the past, isn’t working today and won’t work anytime soon.

We are also aiming to by convincing our governments to take immediate action to rejuvenate public pension plans such as Canada Pension Plan, Old Age Security and Guaranteed Income Security. The Conservatives, under Stephen Harper, have come up with only one idea so far, and that is to make people wait another two years before they can collect OAS (at age 67 instead of the current age of 65).

That’s why Canada’s Trade Union movement is unanimously behind the plan being championed by the Canadian Labour Congress to lift our seniors out of poverty once they are no longer able to work or have to leave the labour force for health reasons. We want to double the benefits of the Canada Pension Plan.

Now that sounds like a pretty bold statement, but in fact, phasing in a doubling Canada Pension Plan benefits over the next seven years can easily be achieved – and should be a government priority. The Canada Pension Plan already covers 93 per cent of all Canadians, union or non-union. Improving the CPP is the simplest and most effective way to dramatically improve the retirement security of all Canadians.

The CPP is portable – no matter where you work, or how many times you change jobs, your CPP benefits follow you. And it’s universal – all workers pay into it – whether employed or self-employed. We are proposing other important pension changes as well – but doubling CPP benefits is the key to success.

In the past three years we have seen the tragic results that come about when pension plans are not properly regulated or protected. Many pension plans have drastically reduced benefits because of the economic meltdown caused by corporate greed and lack of government regulations.

The Right Wing, and their mouthpieces like the CD Howe Institute, the Canadian Federation of Independent Business, and the Canadian Taxpayers Federation want to strip public sector workers of their modest pensions which they have contributed to all their working lives. Employers are increasingly demanding that their workers accept inferior defined contribution pension plans, where the income is dependent on the market and are high risk – instead of the more secure defined benefit pension plans we have always fought for.

We need to double the Canada Pension Plan benefits – to a maximum of $1635 a month – so that no worker is forced to retire into poverty.

We already know that the CPP and other social programs don’t provide seniors with enough income. Even the maximum amounts now available through the Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement fall short of pre-retirement income people need to maintain decent living standards.

Today, there are more than 1.6 million seniors who live below the poverty line That’s not good enough for the people who have built this country. We believe that doubling the Canada Pension Plan benefits is the answer.

Here’s how it would work:
Right now both workers and employers each pay 4.95 per cent of salary into the CPP.
Under our seven-year plan, CPP contributions would gradually increase by another 2.85 percentage points for both workers and employers.
These increased contributions would effectively double the average earnings replaced by CPP pension benefits, to $1,635 per month. For about a 50 per cent increase in premiums, over time you get a 100 per cent increase in benefits.

This is about preparing for the future – the full effect of this reform will benefit young workers the most because they would be paying higher premiums over a longer period of time.

It may seem surprising that contributing an extra 3 per cent of salary can finance a doubling of Canada Pension Plan pension benefits. This is possible because the CPP structure is so cost-efficient, it can achieve more with less.

Improving the Canada Pension Plan is the single best way to protect the retirement security of all workers. Our plan has been reviewed and costed by Bernard Dussault, who was the Chief Actuary of the CPP and Old Age Security program from 1992 to 1997.

But convincing the federal and provincial governments to begin doubling the Canada Pension Plan won’t be easy. The good news is Manitobans have a provincial government that is dedicated to our campaign.

The support we have received from the Selinger Government has been great. Its analysis is, “An expansion of the CPP would increase savings adequacy in the future by building on the plan’s existing strengths. CPP’s guaranteed benefits are secure, inflation-indexed and portable. This approach is the most practical approach to address concerns surrounding retirement income.”

Initially we had the federal government’s support too, but flip-flopped to pander to its business supporters and its conservative ideologue base in Alberta. They moved from endorsing the CLC plan as an effective way to quickly and affordably address seniors’ poverty to backing the so-called Alberta option of a voluntary, RRSP-type contribution scheme to be administered by the private sector less than six months later.

“Administered by the private sector.” That’s rich.

That should read, “a fund barely able to keep pace with inflation while being bled dry by private sector administrative fees.” That’s the same model that so far has proven to be under-utilized and completely ineffective.

The banks and financial institutions that make big profits from RRSP sales already oppose the idea and will fight to stop us. The Canadian Taxpayers Federation and the CFIB will fight this and call any increase in premiums a tax grab.

Nonsense! These same people say the same thing about modest rises in minimum wages – a floor that hasn’t kept pace with inflation and keeps minimum wage earners in poverty.

These same people would rather seniors live in poverty and not be able to afford to shop at the very businesses that are members of the CFIB. It’s time to tell them that Canadians see through their nonsense.

And we know that with your help, we can win.

Just remember – the labour movement in Canada helped create unemployment insurance and public Medicare, as well as other important social programs. We went out and convinced our members – and then the general public – that these programs would help all Canadians.

Now we’re going to do it again – to help create a Canada Pension Plan that all of us can count on! Retiring with dignity and security should be a right for all – not a privilege for a few.

There are two other major changes the Canadian Labour Congress is calling for to protect workers’ retirement. First, we believe that the Guaranteed Income Supplement, which is part of Old Age Security benefits, must be increased by 15 per cent to immediately lift seniors out of poverty. This change is endorsed by Monica Townson, one of Canada’s leading pension experts.

Lastly, we want a federal system of pension insurance.

We insure our lives, our homes, our vehicles, our jobs. Even our savings in the bank are insured – but not our pensions! That doesn’t make any sense – and it’s time for that to change

We believe that the pensions Canadians have worked so hard to earn should be insured – for up to $2,500 per month. That’s $30,000 per year for every person.

So there is our plan for retirement security. It is simple, it is cost-effective and it can be done. Together, we can change our CPP plan to ensure all Canadian’s can retire with dignity and respect, above the poverty line.