Time to address pension issues
TheStar.com – Opinion/editorial – Time to address pension issues
November 23, 2008
In normal times, talk of pensions can end a conversation as eyes glaze over and ears tune out.
But we live in interesting, turbulent times. Pensions are now on the biggest roller coaster ride in recent memory in the wake of stock market plunges that have wiped billions of dollars from portfolios. Some pension plans have been badly underfunded since long before the crash. And for two out of three Ontario workers, talk of pensions is just talk – because they lack access to an employer pension plan.
Now, those severe economic challenges offer an opportunity to start a new conversation on pensions.
When the Ontario government set up an Expert Commission on Pensions headed by Harry Arthurs in 2006, a market meltdown wasn’t on the horizon. But the long-term outlook for pensions was still gloomy: the number of workers covered by private pensions had declined from 40 per cent in 1985 to less than 35 per cent today, and the trend was inexorably downward because of the steady decline in unionized and industrial jobs.
Moreover, the traditional “defined benefit” pensions that paid out a promised amount have also declined as employers opt for “defined contribution” plans that don’t leave them on the hook.
In a report submitted last week, Arthurs makes several proposals to encourage new or expanded pension plans by private firms. But in today’s severe economic times it is hard to fathom many firms making fresh pension commitments.
Arthurs argues persuasively there may be another alternative: reinventing the Canada Pension Plan that was one of Lester Pearson’s pioneering social reforms.
His report examines “an expanded or two-tier CPP” that has drawn support from both business and labour groups. It could increase the benefit (now 25 per cent of a worker’s best years) and/or increase the maximum pensionable earnings (now limited to $44,900, roughly the average wage). Another option would be to let workers and employers voluntarily make extra contributions, which would be handled by the CPP and provide better benefits.
The great advantage to a bigger, better CPP plan would be the critical mass that such a massive, diversified pension plan offers to retirees. More than 12 million Canadian workers contribute to the CPP and some 3.4 million retirees get benefits. The CPP Investment Board now has $120 billion in funds available for investment, managed by 400 analysts. Arthurs is right to say that this concept – or an Ontario-only version – deserves further study, possibly at a national pension summit.
Many of his other recommendations also deserve the Ontario government’s support: a separate Ontario Pension Agency; a provincial pensions czar to shine a spotlight on the issue; improved portability for workers who change jobs several times in a lifetime; and greater flexibility in keeping pension plans fully funded when market swings can make even the most diligent employer fall behind.
“I think this is the best chance in a generation to improve Ontario’s pension system,” Arthurs said last week. At a time of significant economic challenge, the opportunity for pension reform may be one consolation.