How to build a bigger, safer nest egg
Published On Sun Jun 13 2010. Ken Georgetti President of the Canadian Labour Congress
The countrywide campaign waged by the labour movement and citizens’ groups for improvements to the Canada and Quebec Pension Plans is paying off. We have been telling political leaders repeatedly that an improved CPP is far and away the best way to guarantee retirement security for Canadians and our leaders are getting the message.
Federal, provincial and territorial finance ministers have been talking about pensions for a year now and will meet in Prince Edward Island June 13-14 to consider their next move. We are pleased that some of the ministers have now announced that indeed they will support improvements to the CPP. Jim Flaherty, the federal minister, and Dwight Duncan, Ontario’s finance minister, both said last week that they support CPP enhancements and have conveyed those sentiments to their fellow ministers.
The CLC’s proposals also received a boost recently when mayors and councillors passed a resolution at their recent Federation of Canadian Municipalities convention calling for an expanded system of public pensions in Canada. These leaders, including Mayors David Miller of Toronto and Gregor Robertson of Vancouver, as well mayors and councillors from Alberta and elsewhere, are closer to their constituents than politicians at any other level of government. The mayors know first-hand how tough it is for their communities and their budgets when seniors are living in poverty. That’s why they support labour’s proposal.
We do have a pensions crisis in Canada. Most of us are not saving enough to live comfortably in retirement. One-third of Canadian workers aged 24-64 have no personal retirement savings at all, and 61.5 per cent of workers (11 million) have no workplace pension. There are 1.6 million seniors living in poverty.
Although the situation is serious, there are solutions at hand. An improved CPP is the safest, easiest and most secure way for Canadians to save for their retirement needs. The CPP is financed entirely by premiums paid by workers and their employers. The plan covers all working Canadians and it is portable no matter where we work or how often they change jobs.
It is financially solid and investment decisions are made by an independent board. The fees are the lowest pension administration fees in the country — less than 0.5 per cent. Contrast that to the 2.5 per cent management fees on most mutual funds and there is simply no comparison. Over a contribution lifetime, the 2 per cent higher administration fees on mutual funds will eat away 40 per cent of an investor’s contributions. Where would you rather place your money?
The CPP will be there for us when we retire and for our children when they retire. The problem is that when the plan was introduced in the 1960s, it was designed to replace only about one-quarter of a worker’s wages in retirement. The private sector was supposed to offer workplace pension plans as top-ups. Not surprisingly, they didn’t live up to their part of the bargain.
The current average wage in Canada is approximately $41,000 per year, and the maximum CPP benefit is about $11,500. Our proposal to expand CPP benefits over time to more than $21,000 a year is financially sound and a practical solution to the retirement security crisis. Expansion of benefits would be phased in and financed by a modest increase in the premiums paid by workers and employers. For someone earning $30,000 a year, the increase would amount to just 6 cents per working hour annually.
Young workers would benefit the most, but middle-aged and older workers would benefit as well. An enhanced CPP, along with Old Age Security benefits and an improved Guaranteed Income Supplement for lower-income seniors, would significantly improve incomes for people in retirement today.
The finance ministers should not let this golden opportunity slip away. We know that the banks and financial services companies on Bay Street are lobbying hard to ensure that they don’t lose out to an expanded public system based on an improved CPP. These special interest groups have dominated the pension debate for too long. The challenge is to make sure that the voices of ordinary Canadians are heard and that their views prevail over those of a financial industry that has a vested interest in maintaining the status quo.
This is an important moment in Canadian history, much like the debate on health care in the 1960s. Canadians can either be forced to go it alone in planning for retirement security using the high fee products served up by the RRSP industry, or we can enjoy the benefits of an enhanced system of public pensions based on the financially solid and proven CPP. Let’s hope our finance ministers get the message. There is no longer any excuse for delaying pension reform.
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