(20 March 2009) - The second of two commentaries by James Clancy, national president of the National Union of Public and General Employees (NUPGE), on the challenges facing pension plans in Canada. Read first commentary
By James Clancy
National Union of Public and General Employees
As I mentioned in the previous commentary on pensions, the real crisis in Canada is the fact that far too few Canadians have a private pension plan.
Only 38% of the Canadian labour force — 5.7 million workers — belong to a pension plan. Close to 10 million Canadian workers do not have a private pension plan. These workers must rely on their own individual savings, through registered retirement savings plan (RRSP) contributions or other means, for their retirement security. Previous Commentaries
Canada is facing a real crisis as more and more workers are left to fend for themselves in saving for their retirement. The scale of this crisis certainly reinforces the longstanding argument that we need to expand our system of public pensions. This must be the focus of the pensions debate in Canada.
The private sector has failed
Let’s face it, the private sector has failed miserably in providing Canadians with decent workplace pensions – and the situation is going to get worse.
Thanks to public pensions, however, Canada has made tremendous gains in overcoming poverty amongst elderly citizens, and providing our seniors with much better prospects for a dignified and secure retirement. If we are not prepared to consider expanding our system of public pensions, poverty will once again become a fact of life for millions of seniors.
Can it be done? Most certainly, and in fact, it appears that the political will to do so is gaining ground during this current economic crisis. In the past year, four provinces have floated the idea of creating their own province-wide pension plans for those workers who are not covered by a pension plan.
While these could be relatively positive responses, this kind of piecemeal provincial response is no substitute for a national response.
A better way
We need to immediately improve and expand on our national public pension system. This involves a two-prong approach:
1. Increase public pension benefits
Canada's universal public pension system, Old Age Security (OAS) and Guaranteed Income Supplement (GIS), a sub-program of OAS which targets low-income seniors, offer a basic level of income security for Canada's seniors. Although benefit levels under OAS and GIS provide a minimum income floor for older Canadians, they are inadequate, despite the fact that many Canadian seniors depend on them as their sole source of income.
In order to strengthen public pensions for the most vulnerable seniors in Canada, GIS rates must continue to increase each year beyond the rate of inflation so that minimum benefits provided by a public pension system provide Canadian seniors with incomes above the poverty line. For example, an increase in GIS benefits of 8% would add $800 million to the overall annual cost of our public pension system.
2. Expand the Canada Pension Plan coverage
We need to expand our national public universal workplace pension plan, the Canada Pension Plan (CPP). CPP certainly has the capacity to provide Canadians with a greater proportion of retirement income. Because it is national in scope, it can offer economies of scale with lower administration costs and investment management fees. For Canadian workers, it provides them with less risk, greater certainty, portability and increased benefits like spousal benefits, death benefits, disability benefits and inflation protection.
Legislation governing CPP should be amended to require employers without workplace pension plans to pay additional CPP premiums. The extra money would be used to pay improved CPP benefit coverage to employees to cover any years they work for employers without a workplace plan. For example, during this time employees would earn CPP benefit coverage equal to 50% (as opposed to the current 25%) of the average Canadian industrial wage.
This would create an incentive for employers to provide pension plans. Employers would have a choice – they could contribute to a workplace pension plan, or pay higher CPP premiums. Either way, it would ensure that employers rightfully contribute to ensuring their workers are able to retire with financial security and dignity.
Reflecting Canadian values
These two proposals for expanding our public pensions system will go a long way in improving the financial security of Canadian seniors. They also reflect Canadian values. Like all public programs and services, our pensions system is an important tie that binds us together as a nation. It is an expression of our collective commitment to one another and to the fundamental democratic principle that all citizens have the right to income security and dignity.
We must seize the opportunity that exists today and demand that our political leaders across the country embrace this approach to improving retirement security for all Canadians. It is only through this approach that we can avoid a much bigger pensions crisis in the years to come.
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