CURC

CURC’s submission on private pension plans

SUBMISSION OF THE CONGRESS OF UNION RETIREES OF CANADA TO THE NATIONAL CONSULTATIONS ON PRIVATE PENSION PLANS

The Congress of Union Retirees represents through its individual and affiliated members over 500,000 retired union members. Many worked in the federal sector. But the pensions of all our members are affected by what the federal jurisdiction does as was clearly shown in the report of the Arthurs Commission in Ontario.

Minister Flaherty in announcing these consultations said, “Many Canadians are concerned about the long term viability of their pension plans. The Government wants to hear people’s views on how we can strengthen the security of pension plan benefits and ensure that the framework is balanced and appropriate.”

The Congress of Union Retirees shares these concerns. We believes this review is timely in light of several provincial reports that have come out – especially the Arthurs report – and with the increasing evidence that many will not receive the pension that they once thought they would due to the economic downturn.

We retirees do have concerns obviously about our own pensions but equally we have a concern about what will happen to our children and grandchildren. We believe that these consultations should seek to address not only the immediate short term problems, important as these are, but also recommend steps to address long term issues.

We start with the very strong belief that we hope that your review shares – namely that workers when they retire should not be reduced to poverty or having to sue their children for support. Seniors have been faced with these unpalatable options in past Canadian history.

Even as recently as 50 years ago, to be old was synonymous with being poor. Thanks largely to a series of public programs – Old Age Security, Guaranteed Income Supplement and Canada / Quebec Pension Plans -the rate of poverty among seniors was reduced. This is an accomplishment Canada should be proud of and should build on.

Workplace pension plans, especially the defined benefit ones, have been essential to assist retirees in being able to maintain a reasonable standard of living when they retire. Encouraging such plans is an important policy objective as the Arthurs report clearly showed.

The threats posed to the pensions in the auto sector have caught everyone’s attention but the pensions negotiated by many workers beyond this sector have been affected by the bankruptcy of their employer. The consultation paper raises a number of options to lessen immediate financial burden on firms whose pension funds are underfunded. While we acknowledge that this adjustment could be warranted in specific cases, we do not believe that there should be a general relaxing of requirements. It should be done only on a case by case basis in a transparent manner.

The tale of GM is a cautionary one in this respect. In the last major downturn in the 1990’s, it was given this type of relief which continued even after the recession was over. The result is that today its pension fund is seriously underfunded.

We stress again that any such relief should not only be temporary but it also must be done transparently with both active and retired plan members being consulted on the changes sought.

The Ontario government does operate a Pension Guarantee Fund that guarantees up to¬†$1,000 a month to those who lose their pension through their firm’s bankruptcy. The Arthurs report recommended that this amount be increased to $ 2,500 to reflect inflation since the limit was first introduced. We very much support this recommendation and believe that it is time to having a similar plan at the federal level.

The objection may be that the Ontario plan even at current benefit levels is one or two major bankruptcies away from being bankrupt itself. Secondly, since such a fund is based on contributions by firms, there would be objections to the added cost in this economic climate. We believe that in these economic times the government must take action to set up such a fund. Yes it may cost money in the short run just as other necessary measures taken at this time do but we believe such a fund is merited to support people who face a threat in loss of income that they thought was guaranteed for no fault of their own.

But a pension guarantee fund is only an answer for short run problems that may exist. We need to think about the long term. That is best done through expanding the Canada and Quebec Pension Plans from its current 25% of average industrial wage to 50% of the average over 10 year period.

When you listen to workers getting laid off at an auto plant where their father had also worked, you realize not only the immediate wrenching of their lives but also that the era of life-time employment over generations is going to become rarer and rarer. A young worker starting in the workforce today likely will be working longer than his first employer is in existence. Only the CPP / QPP offers the portability that will allow a person to accumulate the needed pension credits over his or her working life. From a macro economic view, such policies will also facilitate labour mobility.

Most workplace defined benefit plans are integrated so that higher CPP or QPP benefit will lessen the financial demand on workplace pensions. Over the 10 years obviously there will be adjustments in contributions to CPP & QPP as well as to workplace plans as we have done in the past. 

This reform will take a decade to implement. To meet the current need, we believe the Old Age Security should be raised to a level to lift all seniors over the low income cut-ff line established by Statistics Canada.

Retirees are quite willing to pay the appropriate level of income tax on their pension income but it seems unfair to have a clawback on pension income, namely the OAS. If the government believes that incomes over $ 65,000 should pay more tax, it should apply to all incomes not just pensions.

CURC wants to be very clear that we strongly support defined benefit plans as the fair way for a worker to gain a reliable retirement income. The Arthurs‚Äö?Ñ?¥ report outlined clearly that small individual retirement funds are very expensive to run compared to large funds. To rely on individual defined contribution or a RRSP is to play with your future as many have recently discovered. Freedom 55 is now a cruel joke rather than an economic reality for many who bought the dream.¬†

The Arthurs‚Äö?Ñ?¥ report clearly recommended that Ontario pursue an expansion of the CPP or else set up its own provincial pension scheme. We believe that the federal government should show leadership by convening meetings to this end.

The objection may be it is easier to amend the constitution than to change CPP \ QPP. If you see that is the stumbling block, I would suggest that you invite into the room the people who actually pay the money to run the plan – workers and employers. We need to do this cooperatively. It must not become hostage to federal – provincial turf wars.

From the time that even extremely minimal public pensions were introduced, there have been some people who have complained that it would cost too much. Fortunately there were others who saw a need and pursued good public policy. Today these attacks are that we will leave our children and grandchildren with a huge debt problem if we have good social programs. We reject this criticism on several grounds. The first is that it assumes a separation between the generations that does not do justice to family values that we hold. Yes for some elderly, their children must give extra time and money when public services are not available for home care or income is insufficient to pay for essentials. But there are just as many cases where retirees are providing financial aid or unpaid child services to their children when the need is there after divorce or job loss. The Arthurs Commission noted at some length the financial boost that the Ontario economy derives from the pensions of seniors.

We want to make the one final point to your consultation that we made to the Ontario Commission namely that though retired we are still members of the pension plan and should have the same right as active members to be informed and consulted. Harry Arthurs agreed with this approach and in his report said

Retirees should no longer be referred to as “former members” of plans,

but rather as “retired members” they should be given effective access¬†to all information available to active members; and they should be¬†eligible to participate in any plan governance process in which active¬†members may participate

Retirees have left the paid workforce; they have not left the life of the community. We appreciate the opportunity to have made our views known and we urge you to take the bold steps that are needed.

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