Public better than private on pensions

TheStar.com – Opinion/EditorialOpinion
Published On Tue Nov 30 2010.    By Linda McQuaig, Columnist

Mayor-elect Rob Ford famously painted the city’s garbage collectors as a pampered elite enjoying a “gravy train.” Appealing as it must be to pick up Toronto’s garbage, that’s one gravy train I don’t mind missing out on.

Similarly misleading attempts to portray public-sector workers as overindulged have come from business spokesperson Catherine Swift, who implies that relatively generous public-sector pensions — for workers cleaning schools and emptying hospital bedpans — are imposing a huge burden on Canadian taxpayers. (Swift omits to mention that public-sector workers pay into their pensions, both as workers and taxpayers.)

Such claims seem aimed at creating divisions among hard-pressed working Canadians, so that those in the private sector will angrily demand cuts to public programs.

The notion that we can’t afford strong public programs — that we’re better off buying services or benefits on our own — is one of the central falsehoods blocking meaningful progress toward improving Canadian well-being.

An excellent example is the looming battle over public pensions, an issue that will be the focus of a meeting of Canada’s finance ministers in December.

While reducing poverty among the elderly has been one of the success stories of Canada’s social welfare system, the situation threatens to deteriorate significantly, largely because of the recent failure of employers to expand private-sector pensions.

All Canadians over 65 receive the federal government’s Old Age Pension and those with very low incomes receive the Guaranteed Income Supplement. But even together, these provide an annual maximum of just $14,034 per person. The other key public program is the Canada Pension Plan (CPP).

The Canadian Labour Congress is pushing to expand the CPP, to double the average benefit, currently only about $500 a month. This expansion, which would involve mandatory increases in premiums paid by workers and employers, would be phased in over time and benefit younger workers most.

Support for an expanded CPP has come from former CPP chief actuary Bernard Dussault, but business and the financial sector would prefer Canadians rely more heavily on private investments in mutual funds and RRSPs.

This is a costly alternative, however, since the financial sector siphons off a significant amount through management fees.

According to Jonathan Kesselman, professor of public finance at Simon Fraser University, management costs at Canadian mutual funds eat up nearly 2 per cent of assets — the highest rate in 20 countries surveyed. By comparison, CPP management costs were just 0.17 per cent last year.

This enables the CPP to pay out more in pension benefits. Kesselman argues that significantly extending the CPP would be “by far the best of all savings vehicles.” In fact, expanding the CPP would ultimately save governments money, by making future retirees less financially dependent.

But this eminently sensible, cost-effective public solution has been resisted by some on the right, who argue that the mandatory CPP deprives Canadians of the choice not to invest in their retirement.

This is reminiscent of arguments by the American right against public health care, on the grounds that some risk-lovers prefer to be without health insurance.

Of course, those making such arguments are usually well-off financially, with little risk in their own lives. Still, they fiercely defend the right of the poor to experience the risky pleasures of life without a safety net.

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