Protect pension plans and retirement savings

National Union policy paper outlines steps to protect and enhance the retirement security of Canadians during the current economic crisis.

Ottawa (9 Jan. 2009) - The current economic crisis is affecting the jobs and income security of millions of Canadians but it is important to remember that the crisis has also placed pressure on the retirement security of Canadian workers and pensioners.

Many workers and pensioners have seen the value of their retirement savings erode as stock markets plunge, says the National Union of Public and General Employees (NUPGE).

There are policy options the federal and provincial governments can take to ensure that all Canadians will be in a position to retire with financial security and dignity. The National Union has recently developed a policy paper – Pensions and the Economic Crisis – outlining a number of legislative and public policy initiatives aimed at promoting and protecting existing pension plans and increasing the income security of a growing number of Canadians who do not have access to a workplace pension plan. Many of these policies are urgently needed now, as a key part of the overall response to the economic downturn.

Protect those with a pension

1. Ensure defined benefit pension plans are protected now

In the short term, the federal government and provincial governments need to guarantee that defined benefit (DB) pension plans will not go under.

If our federal government can use public funds to help stabilize Canada’s financial institutions during difficult economic times, then it should be able to ensure that pension plans that workers rely on for retirement security are protected. This would provide important economic stimulus while guaranteeing that workers retire in dignity.

2. A National Pension Benefit Guarantee Fund

In the longer term, we need more permanent protection for the retirement funds of Canadian workers. We need to establish a national Pension Benefit Guarantee Fund (PBGF) encompassing all Canadian jurisdictions. This could be funded by a minimal tax on stock market and financial transactions, such as several countries have done.

3. Promote superior Defined Benefit Pensions through tax incentives

The most superior type of workplace pensions in Canada are defined benefit (DB) plans, where workers are promised a certain monthly benefit from their pension. The amount of the benefit is determined according to a formula based on the worker’s salary, age and years of service.

We need to encourage DB pension plans as a matter of public policy. We should create incentives through our tax system that encourage employers to have DB plans.

4. Temporary funding relief - with conditions

Certainly many companies are currently faced with funding shortfalls for their pension plans. There’s no question that the recent market collapse has decreased the value of pension funds, and in some cases that may be to a critical degree. It makes sense to consider a temporary extension of the time lines for making up shortfalls in pension plan funding, which currently have to be made up within five years.

But there are risks to this approach, especially for the workers whose pension plans could be in jeopardy if the current market downturn continues for an extended period of time.

To minimize the risk to workers, certain legislative conditions must apply:

  • Extending the five-year period for making up deficits should be on a case-by-case basis and should not extend beyond 10 years;
  • There must be minimum catch-up contributions made each year to the plan;
  • Requests should require approval of the bargaining agent, or the active plan members and the retirees − and allow full access to corporate financial records and any plans for restructuring; and
  • Employers must be prepared to negotiate with the union to give it a greater say in the administration and management of the plan including joint trusteeship and shared ownership of any future surpluses.

5. More jointly trusteed plans; better managed and funded

Pension plans that are jointly trusteed are not facing nearly the same level of difficulty as other plans. In a jointly trusteed pension plan, the responsibility for the financial health of the plan is shared equally between the employer and the union membership. In practice this has led to healthier funds, and fewer funding crises. We need a concerted push for joint trusteeship, supported by government policy.

Enhance retirement security for those without a pension

As worrisome as the situation is for those with a pension, it is even worse for those without any pension coverage, and there are far too many Canadians without a pension plan other than the Canada Pension Plan (CPP). Only 38% of the Canadian labour force belongs to a workplace pension plan. Close to 10 million Canadian workers do not have a private pension plan and about 30% of households have no retirement savings. More and more Canadians are relying on our public pension system in their senior years as their only source of retirement income.

If government policymakers continue to ignore this crisis, we are going to have an increasing number of seniors living in poverty. This undoubtedly will place increased pressure on our public pension system and increased costs to the federal and provincial governments in reduced tax revenues and increased social spending.

1. Increase public pension benefits

There is a critical need to improve our public pension system. 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. Benefit levels for OAS and GIS are inadequate, despite the fact that many Canadian seniors depend on OAS and GIS as their sole source of income.

In combination, OAS and GIS provide a minimum income floor for older Canadians. 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.

2. Expand the Canada Pension Plan

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.

This proposal 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.

3. Better regulation of Canada’s private retirement savings system

The current economic crisis has certainly shown the desperate need for greater regulatory oversight of all financial institutions, especially those which are responsible for overseeing the retirement savings of Canadians.

Federal and provincial legislators need to strengthen the regulatory system governing banks and other financial institutions that are responsible for managing the retirement savings of millions of Canadians. Governments must ensure greater transparency in the structure and content of investment products.

Canada’s investment and management fees are the highest in the world and we therefore need better rules and more transparency on those fees. Governments must demand better labeling of financial products that the mutual fund and insurance industries sell. There should be reasonable limits set on administration costs for pensions, whether it is RRSPs or larger workplace plans.

A National Pension Reform Summit

The National Union supports the call for a National Pension Reform Summit to be held in 2009 and attended by all the ministers who have legislative and regulatory responsibility for pension matters as well as the key pension stakeholders. The summit would address a range of pension issues, including the steady decline in the number of Canadian workers covered by workplace pension plans. Central to the discussion must be an expansion of our public pension system and a national legislative and regulatory framework that protects and promotes quality DB pension plans. NUPGE


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

More information:

Pensions and the Economic Crisis - pdf

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