Sour taste in ‘sweet’ Tory pension plan

TheStar.com – opinion/editorialopinion
Published On Thu Jul 21 2011.    By Carol Goar, Editorial Board

Eager to market his government’s latest pension scheme, Ted Menzies, minister of state for finance, headed to Toronto this week. His first stop was Swiss Master Chocolatier, an upscale confectionary just north of the Bridle Path.

“This is a major initiative that will really benefit many Canadians that don’t have the same security of a work pension as others,” he told employees of the chocolate shop, heralding the impending introduction of Pooled Registered Pension Plans.

“It is especially important to small business and its employees who will now have access to a low-cost private pension for the very first time.”

Menzies’s visit to North York kicked off a cross-country tour designed to convince Canadians the Harper government is working hard to bolster the country’s recession-battered pension system and help workers reach their retirement goals.

Pooled Registered Pension Plans, he assured listeners, were the top choice of Canada’s federal, provincial and territorial finance ministers at their last meeting in Kananaskis, Alta. In fact, they were the only choice available, after Ottawa shelved a more ambitious proposal to expand the Canada Pension Plan. Six provincial finance ministers, including Ontario’s Dwight Duncan, fought hard for improvements in the public pension system and lost.

The labour movement, seniors’ groups, think-tanks, independent economists, many employers and millions of Canadians watched with disappointment.

The “major initiative” Menzies is now promoting is a voluntary, privately administered scheme for companies without a pension plan, their employees and self-employed workers.

It will, as he contends, fill a gap in Canada’s retirement income system. Sixty per cent of Canadian workers — 75 per cent in the private sector — have no pension.

But it won’t protect workers’ savings from market turbulence nor will it provide post-retirement security. There is no guarantee that any of these pooled pension plans will be large enough to be sustainable.

How much participants get will depend on the size of their contributions, the performance of the fund and the fee charged by the investment dealer managing the plan.

It will be up to each province to decide whether employers that don’t provide pension plans must enrol their workers. It will be up to individual businesses to decide whether or not to match their employees’ contributions. And it will be up to participants to decide how long they want to stay in the plan.

There is no mechanism for Ottawa to knit these pooled plans into a national pension system with uniform rules and federal oversight.

It is certainly better than nothing. But it is a second-best solution and a poor substitute for strengthening the Canada Pension Plan, which covers the entire working population, is mandatory for all employers and employees, has worked well for 45 years and is actuarially sound for the next 75 years.

The only problem with the Canada Pension Plan is that it doesn’t provide enough to live on. The average annual payout is $6,150 a year. Even when that is combined with Old Age Security — the universal payment to all Canadians over 65 — the average is just $12,100, which falls roughly $6,800 below the poverty line.

That was fine when it was a supplement to the workplace pensions that most families could count on a generation ago. But today, 11 million workers have no pension. Many have no retirement savings at all.

Academics, actuaries, nonbank economists, labour leaders and seniors have urged the government since the recession to expand the Canada Pension Plan. Polls show Canadians would be willing to increase their contributions to assure themselves and others a dignified retirement.

The Conservatives are offering a less comprehensive, less reliable alternative.

It is Menzies’s job to convince Canadians it is a “sweet” idea.

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