'Governments should underwrite the pension plans of Canadian workers because to do anything else would be unfair and economically disastrous.' - Larry Brown, NUPGE.
By Larry Brown
National Union of Public and General Employees (NUPGE)
Ottawa (8 June 2009) - Under the heading of ‘better late than never’, our governments have discovered that we have a pension crisis in Canada.
This has been obvious to most Canadians for years but when the country's finance ministers met recently they acted as if it were breaking news.
The nature of the crisis is obvious too, but there, we were not so fortunate. The finance ministers' great leap into action was to appoint a committee to study the problem - as if the whole issue were a mystery.
Meanwhile, the Globe and Mail contributed to the confusion by publishing a front page story referring to the pension crisis as a puzzle.
A puzzle? The pension crisis is straightforward and we don’t need more studies to discover what’s already well known. There are two aspects to it.
CPP and OAS are not enough
First, we have too many Canadians (over 60%) who have no pension other than the Canada Pension Plan (CPP). The top CPP payout is a modest $10,900 per year. Beyond that there is Old Age Security (OAS), which amounts to about $6,000. This means the majority of Canadians will have an income of $16,900 per year on retirement, plus whatever they have in private savings. That’s an awful state of affairs as we head for a record number of Canadians retiring in the coming years.
A companion piece to this is that too many companies have abandoned their obligation to provide pensions for their employees by moving to a system that simply accumulates a pot of money but does not actually provide a pension. This is called a Defined Contribution Pension but in reality it’s a simple savings plan.
Second, we have several very large pension plans now in danger because the companies sponsoring them have failed to keep the plans fully funded, and the firms themselves are now facing potential bankruptcy. Do the names Nortel, Air Canada, GM and Chrysler ring a bell?
Both of these problems are resolvable. We simply need the political will to act. Instead, what we have is tinkering and delay.
Pension coverage is too low
It is possible, in fact necessary, to fix the problem of insufficient pension coverage in Canada.
We know that more than six out of 10 employees do not have a workplace pension. We know that RRSP coverage is not nearly adequate to bridge the gap – the mean RRSP contribution in 2007 was $2,400. Moreover, most RRSP contributors are people who already have pensions.
We know that 6.3 million working Canadians have neither a workplace pension nor an RRSP – this at a time when we are about to see record numbers of people retiring as the baby boom generation leaves the workforce.
We know that if a retiree relies solely on OAS and CPP, that retiree will be living in poverty.
Governments don’t need to study an issue that has already been studied to death. Instead, we need to move urgently to increase the number of people who have pensions.
The simplest way to move forward on this critical gap is to increase the CPP for workers without a workplace pension.
Raise CPP contributions
NUPGE has long advocated that employers who choose not to provide a pension plan should be required to make higher CPP contributions. This would enable employees without pension coverage to receive higher CPP benefits. Employers would have a choice. They could pay higher CPP premiums or set up a pension plan. Either way employees would be better protected. This idea is gaining traction and the need for it is greater than ever.
Just as simply, we should have a tax system that contains incentives for employers to set up, or keep, defined benefit pension plans. These plans are demonstrably better. They meet a real social need and they should be encouraged by our tax system.
Some pensions are in crisis because of bankruptcy.
The easiest issue to deal with – the issue that can be most quickly addressed – is the critical under-funding of some of large pension plans. While our federal government has been busy bailing out the banks, and big companies, it has largely ignored the huge group of Canadians waiting for assurance that the economic storm will not destroy their lives.
Many pensioners have been hit hard by the economic disaster and their promised retirement savings are threatened by forces beyond their control. They need disaster relief.
Thousands upon thousands threatened
If workers and pensioners are left to deal with the fallout of bankruptcies and the loss of pension security without government aid, thousands upon thousands may have their promised retirement savings eroded, creating an abrupt loss of their standard of living and purchasing power. This is as great an economic and social disaster as any bank going under, as any flood or windstorm could ever be.
Furthermore, a pension guarantee would provide a greater real economic stimulus than guarantees to the banks could ever provide – money going to retired workers is spent directly into the economy.
A guarantee that pension plans will not fail does not mean that governments would be liable for every dollar at stake. They would merely guarantee any shortfall. Yes, there would be a cost but this has not deterred the governments from stabilizing the banks.
Citizens are at least as important as the banks.
Yet standing in the way of this action is a noxious new political cliché that governments should not use money from taxpayers who lack a pension to help the privileged “few” who do.
This argument is being seized on by governments as an excuse not to act. It’s a strange, even asinine, argument. Applied generally, it would reduce all government programs to the lowest common denominator.
It is not being applied, for example, to the banks. Banks are being bailed out to the tune of billions, a subsidy paid for by taxpayers who will never earn a fraction of the salaries lavished on bank CEOs. Governments are clearly being selective. But there is a more substantive rebuttal to their foolish argument.
If applied generally, this logic would make it unacceptable for government to fund any program beyond the level of the average wage. In turn, this would destroy much of the public sector and many of the public services in this country.
For example, we could not have wages in the public sector higher than the average wage, no matter what skill or experience was being provided. It would make no difference if most other employees of large organizations made that kind of wage – the average taxpayer limit would rule the day. We could have no public sector management salaries, because they would be higher than the average wage.
Even cabinet salaries could not be higher than the average wage, for that matter. There would be no income support programs for farmers or fishers except to the level of the average wage. We could have no research programs for scientists, nor lawyers fees paid by the public sector, nor doctor’s salaries, and on and on. Nor could infrastructure programs for construction and renovation contain any wages beyond the average, and certainly not pension benefits for the workers involved.
Or how about the argument that taxpayers without children should not have to pay taxes for education, or taxpayers who don’t fly should not have to pay for airports?
The whole premise is silly and is only given credence because it allows governments to sidestep a moral obligation to workers.
Governments should underwrite the pension plans of Canadian workers because to do anything else would be unfair and economically disastrous. One thing our economy definitely does not need is hundreds of thousands more people, all of them seniors, deprived of serious purchasing power.
We have a crisis in our pension system. The response from the federal government is to make relatively small and dubious changes to CPP and to create a committee to study an issue that is already clearly understood. One is left almost speechless at the missed opportunity.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE