Canada's finance ministers are doing Canadians a grave disservice by pretending that no real crisis exists within our failing pension system.
By Larry Brown
National Union of Public and General Employees (NUPGE)
Ottawa (6 Jan. 2010) - Many people know that about 60% of Canadians don’t have a workplace pension, that most of the people with registered retirement savings plans (RRSPs) are the same ones that already have workplace pensions, that the majority of RRSPs in any event are way too small to provide any real retirement income and that if you retire with no pension other than the CPP you’ll be getting by on about $16,000 a year combined Canada Pension Plan (CPP) and Old Age Security (OAS).
Several high profile cases of promised pensions evaporating because of financial troubles at the company prove that our existing pensions aren’t well enough protected. This is all at a time when huge numbers of Canadians will be retiring as the baby boom generation hits retirement age.
People who have added up all of these facts have reached the very sensible conclusion that we have a looming crisis on our hands and that action is needed.
Well, we can all relax now, because the pension crisis has apparently been eliminated. It was eliminated not by new government action, not by new government policies but by the simple expedient of a declaration that the crisis doesn’t exist. The federal and provincial finance ministers got together in Whitehorse in December and declared that there is no pension crisis in Canada - an amazingly efficient move. It sure beats the heck out of developing new policies or programs.
One hopes the finance ministers also declared it would not be a cold winter in Whitehorse. Why should seniors get all the breaks?
The finance ministers seem to have mainly ignored a report from pension expert Bob Baldwin, one of the most knowledgeable pension people in Canada, who concluded that weaknesses in Canada’s pension system will mean that a significant minority of workers will be much poorer in retirement.
Instead the ministers seemed to have mostly listened to a report from Professor Jack Mintz. He is reported to have determined that “over 80% of Canadians are saving enough to replace 90% of their working income in retirement.” That would be a truly astounding statement, in fact a truly absurd statement, if Mr. Mintz had actually said it. It appears that he didn’t. He said something much less precise and much less informative.
Based on a Financial Post article written by Mr. Mintz, what he concluded was that the average disposable income of Canadians aged 65 years or over is about 90% of the average disposable income of all Canadians, based on research by the Organization of Economic Co-operation and Development (OECD).
That’s interesting but not very useful. All that says is that no matter what your income was while working, when you get to be 65 you will on average have 90% as much disposable income as the average disposable income of all Canadians. That kind of average is a very blunt instrument.
It’s not clear on what information this is based. The most recent figures from Statistics Canada note that while the average income from wages was $64,900, the average retirement income was only $23,300.
The ‘facts’ put forward by Mr. Mintz are figures without context that prove nothing. There is only one issue that matters: given the current pension situation, will a large number of Canadians find that they are facing a seriously reduced, poverty level income in retirement?
The same OECD that Mr. Mintz quotes says that Canada has the fourth lowest rate of public pensions in the OECD. The OECD average rate is for public pensions to cover 60% of seniors’ incomes, while Canada only covers about 40%. The rest comes from working income and ‘capital’ – which is interest and dividends from savings. Is it reasonable to suggest that most Canadians have enough ‘capital’ (savings) to ensure themselves a decent lifestyle on retirement? Or do we have to mask that question with averages?
Everyone knows that averages can be very unhelpful. If the whole of Canadians over 65 includes those with CEO style pensions, and those with solid defined benefit pensions like Mr. Mintz has, which it does, then the whole notion of the average gets immediately thrown out of whack. If you make $16,000 a year and the retired CEO makes $2,000,000 a year in pension, it’s not very useful for you to know that the average of your incomes is over a $1 million a year. That won’t buy you any more groceries. And if your pension is that low, part of your over 65 income will likely be as a Wal-Mart greeter because you’ll need more to live on.
Interestingly, Mr. Mintz says that part of the reason for what he claims is the relatively good position of Canada’s seniors is government programs. “For most Canadians, federal and provincial governments provide a minimum level of support through OAS, the GIS and provincial top-up programs. Federal and provincial governments also support seniors by providing personal tax relief and in-kind benefits or subsidies related to public programs such as Medicare, disability and long-term care, and pharmaceutical purchases.”
But that is one of the points made by those who see a crisis in the works. Unless more Canadians have pensions, the demands for government support are going to increase exponentially, and all the while right wing commentators will argue that governments need to cut back on their spending.
More interestingly, Mr. Mintz also says:
“There is some evidence that not all working Canadians are saving enough to obtain the same level of consumption in their retirement as in working years. These estimates suggest that one-fifth of Canadians may not have sufficient Registered Pension Plan (RPP) and RRSP assets to replace at least 90% of their pre-retirement consumption, with higher degrees of inadequacy especially for modest and middle income Canadians.”
Isn’t that essentially what Bob Baldwin found? It certainly sounds similar to “weaknesses in Canada’s pension system will mean that a significant minority of workers will be much poorer in retirement.”
Twenty percent of Canadians falling short on retirement would seem kind of critical to most of us. Of course the mindset at work here is striking. It is the fault of that 20% that they didn’t save enough. Of course, it couldn’t be the fault of a system that rewards employers for not having a pension plan, and not the fault of employers bailing out of defined benefit pension plans, and not the fault of low wages, and not the fault of high costs for tuition and all the other costs that have soared; it could only be the fault of those foolish workers who didn’t save more.
The surprising revelation that no pension crisis exists was orchestrated by federal Finance Minister Flaherty, who engaged Jack Mintz to study the issue in the first place and then pushed for acceptance of the ‘no crisis’ conclusion. Before Mr. Flaherty hired him, Mintz had been on record as being opposed to new public pension plans and called recent provincial proposals for new pension systems “a dangerous new idea” that would “create a non-taxable competitor over private companies such as banks and insurance companies.” Mr. Flaherty got what he wanted and what he expected from his ‘researcher’.
Sadly, this all should come as no surprise. Mr. Flaherty has, after all, spent his entire career attacking the notion of using government as a constructive force in our society while defending the virtues of the private marketplace. Nobody should be shocked now that an investigation into the pension crisis, orchestrated by him, should fail to rise to the occasion.
We have a situation where the majority of Canadians don’t have a pension. That’s a fact. The majority of those without a pension don’t have any significant RRSP savings. That’s a fact. We have a looming retirement wave coming, bigger than we’ve ever seen before. That’s a fact. We have supposedly safe pension plans collapsing because of company mismanagement. That’s a fact. We have declining pension coverage so that younger workers will have even less of a chance of having a decent retirement income. That’s a fact.
But thank goodness none of this amounts to a crisis. Is that a fact?
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