Backlash Grows Against Pension Proposal

Following up on my last comment on the showdown in Kananaskis, Richard J. Brennan and Les Whittington of the Toronto Star report, Backlash grows against Flaherty’s pension proposal:
Two dozen protestors barged into Finance Minister Jim Flaherty’s office in Whitby on Friday as a backlash against his latest pension proposal gathered force.

“We’ve been betrayed,” Ontario Federation of Labour President Sid Ryan said as labour and community figures occupied Flaherty’s constituency office.

Ryan said the labour movement was angered by the Harper government’s surprise decision to opt for a private sector solution to the country’s pension problems rather than enhancing the Canada Pension Plan, as Flaherty had previously proposed.

Unlike the CPP, the new Pooled Registered Pension Plan, or PRPP, would be a voluntary scheme administered by the financial industry.

Ryan said the voluntary plan unveiled Thursday would do little to help solve a situation in which nearly one-third of Canadian families lack any pension savings.

“What Flaherty is proposing is a glorified savings plan — a gimmick to get the issue of pensions off the front pages,” Ryan said in a telephone interview.

Neither employers nor workers would be required to pay into the PRPP, Ryan said. “It will not deliver income security for Canadians the way an expansion of the CPP will,” he said.

Flaherty was in St. John’s for pre-budget consultations and, after several hours at the office, Ryan said the protestors were about to leave to ensure there would be no confrontation with police.

“We’ll be back,” Ryan said. “This will be the first of many protests across the country.”

The fractious issue of pensions has been gathering steam for more than a year and is likely to come to a head when Flaherty meets with his provincial counterparts in Kananaskis, Alta., on Sunday and Monday.

After studying Flaherty’s pension proposal for a day, Ontario Finance Minister Dwight Duncan on Friday lashed out at the federal government, accusing the Conservatives of misleading the country on a matter of importance to all Canadians.

“We just think this is a terrible decision for Canadians and a bad decision overall,” Duncan told the Toronto Star Friday.

“The real story here is that they (the federal Conservatives) are clearly flip-flopping and breaking the commitment they made (in June).

“They basically misled us.”

Last summer, Flaherty said he agreed with a majority of provincial governments that a slight increase in CPP premiums would be the best way to help Canadians save more for retirement.

Duncan said Flaherty can expect trouble if he asks the provincial finance ministers in Kananaskis to endorse his new pension proposal.

Duncan said he had been in touch with other provinces and “I can tell you that a number of provinces are surprised” that Ottawa has turned its back on CPP enhancements.

Ontario and other provinces “are going to continue to fight for enhancements to the CPP,” said Duncan, who suspects pressure from the business community forced Ottawa to abandon its promise.

Flaherty’s proposed PRPP would provide a lucrative new source of business for life insurance companies and other financial institutions.

Ontario and most other provinces have recommended a “modest” increase to CPP premiums over a period of time, but Prime Minister Stephen Harper rejected that out of hand Thursday.

Canadian Labour Congress President Ken Georgetti said he was astonished and disappointed with Flaherty’s new proposal.

“Everybody knows that the best way to ensure the retirement security of Canadians is to enhance the CPP,” Georgetti said. “There is overwhelming evidence that the private sector, voluntary system of saving for retirement has failed us for over 40 years and won’t work now.”

Susan Eng, vice-president of advocacy for CARP, an advocacy group for older Canadians, said its members welcome any moves to provide a long-awaited improvement in pension security.

But she said Flaherty, in exchange for providing a new source of business to financial institutions, must demand commitments not to gouge pension savers through high administrative fees. To protect the public, there should also be guarantees to ensure benefit adequacy and ethical performance by administrators, she said.

“You’re about to hand some billions of dollars in business over to a monopoly” of banks and insurance companies, Eng said in an interview. “So, before you hand over all this business, let’s talk about some regulations.”

Susan Eng forwarded me CARP's response to the new pension proposal. Most of CARP's members are worried about their retirement, and rightfully so.

The Montreal Gazette reports that in the shifting alliances of Canadian federalism, Quebec is siding with Alberta and the federal government in opposition to higher pension benefits to be paid by the Canada and Quebec public pension plans because that would also mean raising payroll deductions for taxpayers:

Ontario and the remaining provinces want improved Canada Pension Plan benefits, and on another federal-provincial front, Alberta and Quebec stand opposed to the federal Finance Minister Jim Flaherty’s proposal for a Canada-wide securities regulator.

On Sunday, the issue of the single securities regulator will be on the agenda when finance ministers from the 10 provinces and three territories gather in Calgary.

Then on Monday in Kananaskis, west of Calgary, pension reform, renewal of the equalization financial transfers from Ottawa to the provinces, as well as efforts to return to a balanced budget and monetary policy will be on the agenda when Flaherty joins the 13 provincial and territorial ministers.

“For Quebec, the renewal of the federal transfers in 2014 must be based on the facts to establish federal transfers that adequately meet the objectives of all partners in the federation,” said Quebec Finance Minister Raymond Bachand.

The federal government has hinted that balancing its budget could mean lower federal transfers.

In his budget for the current year, Bachand can count on $15.3 billion in federal transfers, including $8.6 billion in equalization payments.

On the pension issue, Quebec is proposing that “more work is needed” on finding ways to improve the retirement income of Canadians, sharing the concern of Alberta that higher contributions of the Quebec pension plan would have a negative impact on the economy.

The Régie des rentes du Québec, Quebec pension plan, is the equivalent of the Canada Pension Plan in the other provinces, paying generally the same benefits and charging similar premiums.

In Kananaskis, Quebec will side with the federal government on its proposal to encourage the creation of private-sector, multi-employer pension plans, meant for small businesses and the self-employed, who now have no private pension plan.

Bachand is calling on the federal government change its legislation and financial regulations to allow the creation of large-scale multi-employer pension plans, to assure lower costs for the participants.

“That will send a clear signal of its willingness to improve rapidly the system of pension income in Canada,” Bachand said.

I'm all for larger scale multi-employer plans, but again, they simply cannot compete with large defined-benefit plans like the CPPIB or the Caisse. Not in fees, not in performance and more importantly, not in governance. Both Mr. Flaherty and Mr. Bachand will enjoy the benefits of a secure pension managed by the Public Sector Pension Investment Board (federal government employees) and the Caisse de dépôt et placement du Québec (Quebec civil servants). Why shouldn't hard working Canadians from all provinces enjoy the same benefits?

Finally, Jonathan Chevreau of the Financial Post reports that on Friday, the C.D. Howe Insitute released a 21-page study entitled Canada’s Looming Retirement Challenge: Will Future Retirees Be Able to Maintain Their Living Standards upon Retirement? (Click here for full report):

It finds Canada’s retirement system “has supported post-retirement consumption relatively well, especially for lower-income individuals and those who reached retirement age in the last 20 years.” However, it is more worried about the prospects for the prospects of younger workers once it’s their turn to retire. It says “the proportion of retirees without the financial resources to replace three-quarters of their pre-retirement consumption could rise sharply – from about one in six currently to more than two in five – over the next 40 years.

In it, Kevin D. Moore, C.D. Howe president William Robson, associate director Alexandre Laurin and Statistics Canada’s Kevin Moore highlight the differing retirement outlooks for Canadians of various age and socio-economic groups, as revealed by a Stats Canada simulation tool called LifePaths.

“A key question in Canada’s pensions debate is whether Canadians will be able to maintain their living standards in retirement, and if policy needs to respond to the risk that some will experience painful declines,” said Mr. Robson.

I fear that most Canadians from my generation and especially younger Canadians will not enjoy the same standard of living. It's not just pensions. The world is becoming much more competitive and the truth is North Americans are lagging behind. But we can do something to improve our pension system building on our existing public pension plans which are among the best in the world. Why squander yet another opportunity to improve our pension system? And if you do it right, both the private sector and and the public sector will come out ahead.