As Canada’s finance ministers discussed pension reform at a seaside resort on Prince Edward Island last week, about 125 union members marched outside the gates chanting, “Hey-ho! Hey-ho! CPP has got to grow.” The workers, who sported blue t-shirts emblazoned with the words “Retirement Security for Everyone,” also waved placards calling on federal and provincial governments to “Expand Our CPP Now!”
The letters CPP refer to the Canada Pension Plan set up in 1966 and financed ever since by payroll contributions from workers and their employers. Today it provides an average annual pension to retired women of about $4,700, while retired male workers get an average of about $6,800. Women receive smaller CPP pensions because they earn, on average, less than three-quarters of what men get paid. Obviously, at those stingy levels, CPP retirement benefits won’t make anyone rich even when combined with the basic old age pension and the guaranteed income supplement. That’s why old people who have no private savings or company pensions are scraping by close to or below the poverty line.
No surprise there. Canada has always lagged well behind other industrial countries when it comes to the size of public pensions. In her 1988 book, Whose Money Is It Anyway? The Showdown On Pensions, journalist Ann Finlayson explains why. She points to “deeply ingrained traditions of individualism, self-sufficiency and the sanctity of the free marketplace.” Finlayson describes how Canada’s insurance companies, banks and investment firms have always fought tooth and nail to keep public pensions to a bare minimum so that they could profit by peddling their own outrageously expensive retirement plans. Now, with the stock markets in free fall, Canadians who did manage to salt money away in RRSPs are watching their retirement savings evaporate. The market meltdown is also threatening the solvency of many company pension plans while workers whose employers are going bankrupt because of the recession are losing the company pensions they paid into.
That’s why finance ministers were discussing modest increases in CPP benefits last week. But modest increases won’t be enough to provide adequate pensions. What we really need are basic improvements in public pensions. The Canadian Labour Congress, the umbrella organization for unions in Canada, has outlined a plan to improve old-age pensions while doubling CPP benefits over seven years. Those benefits would be financed by a modest and gradual increase of just over two percent in payroll deductions from workers, matched by an equal contribution from their employers.
Unfortunately those reforms aren’t likely to happen as long as right-wing ideologues like federal finance minister Jim Flaherty are in power. Yes, Flaherty’s the guy who quietly bailed out the big banks by buying up $125 billion worth of their shaky mortgages. He also crusaded loudly against a bank bailout tax. Instead, as columnist Ralph Surette pointed out in last Saturday’s Herald, the Harper government is slashing corporate taxes, handing the banks hundreds of millions of dollars at a time when they’re making billions in profits and paying their execs billions in bonuses. So, don’t expect Flaherty to displease his banking friends by improving public pensions.
Flaherty is helped by ill-informed journalists who perpetuate myths about the Canada Pension Plan going broke paying benefits to hordes of aging baby boomers. Fact is, pension experts agree the CPP is financially secure for at least 75 years. Another media myth is that younger workers will pay way more in CPP contributions than they will ever receive in pensions. Fact is, younger workers would benefit most from any improvements to the CPP, even modest ones, because the longer workers contribute, the more they earn in inflation-protected benefits. Propaganda that tries to pit one generation against another won’t work anymore. It’s plain that a massively corrupt financial system triggered the worldwide economic meltdown. So, why should we continue to trust bankers with our retirement savings?
Hey-ho! Hey-ho! CPP has got to grow.
This article appears in Jun 24-30, 2010.
Women do very well out of CPP. For example, my wife spent 11 years raising kids and out of the workforce. All those years count towards her CPP at the rate she would have earned if in her profession.
When I left public sector employment to return to the private sector I opted not to leave the money in the pension plan but transferred the assets to a locked in RRSP. Over the past 18 years I have a return of 10.8% compounded annually after all fees and that money plus CPP will give me a much larger pension than if I had chosen to leave the money in the government plan.
I have happily paid for the advice and guidance from the investment subsidiary of a major bank, such fees were not ‘outrageously expensive’, and any mistakes were of my own making.
The upside of managing your own money is never explained to employees.
With a conservative approach an employee can have a nice pot of money when about to retire and can decide how to spend it depeneding on the circumstances at the time of retirement. Where a person is diagnosed with a critical illness or has an expectantcy of early death the assets will be part of the estate and not disappear into the pensions of surviving members of a pension plan. The estate planning options for anyone are much greater where the person has an RRSP or a defined contribution pension plan and this issue becomes much greater as one reaches retirement age.
The national programmes for seniors are good and are just a foundation for retirement income. If employees spent a few hours a week understanding their options and planning for retirement they would quickly learn that the calls for more government control of their income is just another stupid idea from Big Labour.
The worldwide meltdown was primarily caused by too much credit being given to too many people who could not afford to pay it back. Tighter restrictions on consumer borrowing for homes, vehicles, boats, vacations and consumer goods are needed. Housing bubbles across Europe and N America remain a major problem, governments encouraged this orgy of consumer spending and aided and abetted in the increased lending by banks.
When did you write about the housing/credit bubble Mr Wark ?
Before or after it burst ?
I agree 100% with Joeblow’s comments!
And Bruce, where did you get the figure $125 billion, the only figure I can find is $75 billion, still a large sum but you seemed to almost double the numbers I found. And by no means was this a bailout. These mortgages that the government bought were insured! Anyone who does not have a 20% down payment has to pay CHMC fees to protect against default. Buying up insured mortgages is hardly a bailout, it does allow credit to flow more freely.
And a bank tax. Can you imagine what would happen to your bank fees if there was a bank tax, the banks would use it as an excuse to hike up your fees. Why should we tax Canadian banks. A bailout fund gives the bank a reason to take more risks, “well if we fail, then we’ll get bailed out”. Canadian banks weathered the “economic crisis” better than almost any other country, why punish them (and the consumer) when our policies are obviously strict enough. However, if the money raised in a bank tax was used to ‘steal from the rich, give to the poor’, a Robin Hood tax, then maybe I could see argument for such a tax.
One last thought, we’ve all heard “buy low, sell high”. If your RRSP took a turn for the worse and you still have a number of years before retirement, I would see as now as a great time to buy. Too many people “buy high, sell low”
This column is an embarrassment. Bruce, stick to writing about things of which you have at least a modicum of understanding, not finance and pensions.
The CPP and Defined Benefit pension plans discriminate against men and in favour of women.
Men and women in such plans pay the same percentage of earnings. Where they earn the same amount they will each receive the same pension. However, the life expectancy of a male is less than that of a woman and as such the male should receive a larger pension. The male pensioners in effect subsidise the women pensioners.
If they were in a Defined Contribution plan they would have the same amount of money available at the time of retirement, assuming they had invested in the same manner, and upon the death of the male his estate would receive the remaining funds rather than it subsidise the longer living woman.
“Another media myth is that younger workers will pay way more in CPP contributions than they will ever receive in pensions.”
Actually, this is a mathematical fact. For decades the CPP was underfunded. Older generations paid in way too little, investment yield estimates were way too optimistic, people are living longer, and benefits increased much too generously. In the 1990’s it was on course to go broke. Fortunately, it was saved. Unfortunately they only way to do this was through the huge rate increases we have seen in the past 10 years. Young workers now are partially funding their own retirement, but a huge chunk of our current contributions is just paying for our parents and grandparents retirement because they didn’t pay enough.
The CPP is a great Canadian institution. But doubling doesn’t always make it twice as good, and often makes it worse. The problem now is that one employee can’t even count on getting his portion of contributions back while another may get considerably more. Nevertheless, it is critical that it should be maintained, but only maintained. Every year rates and beneifts should be adjusted to ensure that there will always be 75 years worth of cash for the future. I also wouldn’t mind seeing some sort of reform to create private accounts for CPP contributions. That way it will still be locked down for retirement but at least it will be for YOUR retirement.