Finding a fix for broken pensions
TheStar.com – Editorials – Finding a fix for broken pensions
October 03, 2009
The sleeper issue in this Great Recession, and likely the next election, is shaping up to be the perilous state of our pensions. Against a backdrop of economic upheaval that has brought more companies to the brink of collapse, it is impossible to ignore the vulnerability of private pension plans in Canada – for those who even have them.
With the foundations of our pension system crumbling, the alarm bells are sounding. The latest warning came last month from David Denison, the respected head of the Canada Pension Plan Investment Board, who called for a quick reforms – including an expanded CPP.
Yet there are few signs that Canada’s leaders are showing the political will to work together for solutions. An appeal for a national summit on pensions, endorsed by Ontario’s Dalton McGuinty and his fellow premiers over the summer, has failed to galvanize Prime Minister Stephen Harper. To date he has assigned Ted Menzies, parliamentary secretary to Finance Minister Jim Flaherty, to travel across Canada hearing briefs. Lacking a seat at the cabinet table, Menzies is also constrained by a focus on industries under federal jurisdiction that account for a fraction of the country’s workforce.
Pensions will be on the agenda at a December meeting of the country’s finance ministers in the Yukon, which hardly seems the setting for serious summitry. The problems are pan-Canadian, and they require co-operation across federal and provincial jurisdictions. Without action, the problems will fester.
The economic downturn has reminded us of what happens when insolvent pension plans are orphaned by bankrupt companies: employees are left at the back of the line, behind secured creditors such as the banks. Ontario’s fledgling Pension Benefits Guarantee Fund is itself badly underfunded and couldn’t cope with the collapse of major corporate pension funds without help from taxpayers. Plus it pays a maximum of $1,000 monthly, far below many pension entitlements.
Only about one in five private sector workers belongs to a company pension plan, so getting “buy-in” for taxpayer bailouts of private pensions can be problematic. Why should a taxpayer without a pension of his own subsidize someone else’s gold-plated plan? The real challenge is to put the pensions of all Canadians on a more solid footing.
Now, the CPP Investment Board’s Denison has jumped into the debate by saying policy-makers need to consider the interests of the 11 million working Canadians who don’t have any company pension coverage. Denison has floated the idea of an expanded CPP. That would take advantage of the efficiencies and huge economies of scale of the existing CPP, while guaranteeing a greater share of the retirement income Canadians will need. And he suggested a possible “supplementary” nationwide pension fund for employees who are not currently covered, with mandatory “defined contributions” akin to RRSPs.
Denison’s intervention is instructive because he used his speech to remind Canadians that the CPP was itself in dire straits in the 1990s. Back then, contribution rates were set too low to sustain the fund’s future obligations, and the plan was heading for insolvency by 2015. It took intensive negotiations between Ottawa and the provinces to put the CPP back on a solid footing.
That was the case 12 years ago. With sufficient political will, solutions could be found again – but a national summit devoted to pensions is the place to make it happen.
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