Canada needs a bigger change in pension system

TheStar.com – Opinion/Editorial – ‘While they address the needs of workers like those caught in the Sears bankruptcy, politicians should resolve to tackle the longer-term issue of retirement security. The most logical solution is to keep building on the firm foundation of the Canada Pension Plan.’
Oct. 26, 2017.   By

Workers at bankrupt Sears Canada are getting a raw deal; that much is clear. Many have already been stiffed on severance payments, and now thousands more are worried they will face deep cuts in pension benefits that they thought were guaranteed.

Understandably, the Sears pensioners are pressing for changes in the law that would give them a better chance of claiming their full benefits. But the real lesson from the Sears debacle lies elsewhere – in the need to strengthen Canada’s public pension system.

At this point it’s probably too late to help the 18,000 Sears pensioners. The company’s pension plan is underfunded to the tune of $270 million and they face losing 19 per cent of the pension they were counting on as part of the company’s bankruptcy process.

That’s a hard blow, especially since they are in what’s known as a defined benefit pension plan: they thought they could count on receiving a certain amount of money each month, no matter what. That’s how they planned their retirement.

Now they’re learning the hard way that under Canadian law employees and pensioners are far back in the line when a company goes bankrupt and its creditors come looking for what’s left of its assets. If there isn’t enough money left over, they lose out.

There’s a good case for changing this. The Bloc Québécois has tabled a private member’s bill in Parliament aimed at putting pensioners ahead of creditors when a company declares bankruptcy. And New Democrat Scott Duvall plans his own bill aimed at putting workers and pensioners ahead of “big fat corporations and CEOs.”

Clearly, Duvall’s heart is in the right place, but changing the law may not be quite so simple. All creditors aren’t big fat corporations; small businesses are often owed money when a company they do business with fails and it’s not clear why they should be pushed back in the line. There will be tricky trade-offs in any reform.

More to the point, any reform of bankruptcy laws aimed at protecting pensioners like those at Sears Canada won’t go far toward addressing the deeper issues involved in making sure everyone has an adequate income in retirement.

Defined benefit pension plans like the one at Sears have been declining for many years, at least in the private sector. In some cases (like Sears) part of the problem is greedy corporations: its biggest shareholder has sucked billions out of the company over the past decade. But other private pension plans are struggling because of more fundamental issues. Retirees are living much longer and interest rates have been at record lows for years. That forces companies to make up the shortfall at a time when they may be fighting for their very survival.

That’s where the public pension system must step in. Canada took a major step forward last year when Ottawa and the provinces agreed on the first expansion of the Canada Pension Plan (CPP) in two decades. But it didn’t go far enough, and the continuing crisis in private pensions underlines why further changes are needed.

The CPP is an admirable system: it guarantees a minimum level of support, it’s cost-effective, and it’s securely funded for many decades into the future. But the changes introduced last year will go only about half way toward meeting the goal of giving workers a basic floor for a decent retirement.

While they address the more immediate needs of workers like those caught in the Sears bankruptcy, politicians should resolve to tackle the longer-term issue of retirement security. The most logical solution is to keep building on the firm foundation of the Canada Pension Plan.

https://www.thestar.com/opinion/editorials/2017/10/26/canada-needs-a-bigger-change-in-pension-system-editorial.html

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