Fixing pensions before it's too late

Lana
Lana Payne
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Canada's pension crisis continues to churn out casualties - from the 78-year-old Nortel retiree to the 82-year-old widow of a former Abitibi worker, no one is immune.

This is a crisis precipitated by greed, bad management, inadequate government regulation and oversight, a stock market meltdown and an economic recession.

Canada's pension crisis continues to churn out casualties - from the 78-year-old Nortel retiree to the 82-year-old widow of a former Abitibi worker, no one is immune.

This is a crisis precipitated by greed, bad management, inadequate government regulation and oversight, a stock market meltdown and an economic recession.

Tens of thousands of retirees are looking at an uncertain and poorer future despite diligently paying into a pension plan over their working lives.

That's largely because the value of pension fund investments has dropped like a lead balloon as a result of the stock market meltdown. It's also because governments and regulators were too lenient with companies.

According to a recent report from Statistics Canada, pension assets in Canada plunged by $300 billion by the end of 2008, down to $1.8 trillion from a peak of $2.1 trillion in 2007. That's a heck of a lot of money.

Underfunded pension plans are of particular concern when companies seek bankruptcy protection or go bankrupt. Abitibi-Bowater is a perfect case in point.

But the problems started long before the recession. The stock market bubble just masked the real troubles with Canada's pension system. For years, governments and regulatory bodies allowed companies pension holidays and turned the other way when they failed to meet their funding requirements.

Today, promises and obligations are being argued about in bankruptcy courts throughout the country as large companies seek protection from creditors and attempt to restructure their operations.

Unions have been forced to fight for their members' pensions in these courts, but it is an uphill battle. The laws are against them. Many unions have complained that companies are hiding behind bankruptcy laws, taking pensioners money to pay off investors.

The Communication, Energy and Paperworkers Union is involved in several of these cases, including the one affecting hundreds and hundreds of retirees in our province, former employees of Abitibi-Bowater and their widows.

The bankruptcy protection court action in that case will impact on the pensions of about 18,000 retirees and widows and another 8,300 employees.

The Abitibi-Bowater pension plans are about $1.4 billion underfunded. If the court rules that the plans are to be terminated, it will mean a minimum of a 25 per cent cut in retirement benefits.

Similar court actions involve the pensions of retired workers from Nortel, Fraser Papers and CanWest Global - to name just a few.

Then there's the issue of the millions of Canadians who have no workplace pension plan and no RRSPs to fall back. The result is a big pension mess.

What Canada needs is a big pension vision. The crisis does provide an opportunity to get it right. But that requires leadership and political will.

So, how can we fix Canada's broken pension system?

First, we should look at what works and build on that.

The success story in Canada's pension system is the public pension programs - Old Aged Security (OAS), Guaranteed Income Supplement (GIS) and Canada Pension Plan (CPP). They are accessible, indexed, portable and universal. The problem is, they just do not pay quite enough.

That can be fixed.

A 15 per cent increase in OAS/GIS benefits would bring every single Canadian senior above the poverty line. It would cost less than $700 million a year - peanuts when you consider that the federal government subsidizes the RRSP system to the tune of $18 billion annually.

RRSPs, for the most part, are purchased by the top 20 per cent of income earners and have proven to be an ineffective retirement savings tool for the vast majority of Canadians. In 2008, just 31 per cent of tax filers contributed to RRSPs and they used only seven per cent of the total contribution room available, according to pension expert and economist Monica Townson.

The second change, being proposed by the Canadian labour movement, is a doubling of the CPP benefit. This would mean workers and employers will have to pay a little more on each paycheque (phased in over seven years), but the dividends will be great - a decent and secure retirement income.

Currently, CPP provides an income replacement of just 25 per cent of pre-retirement earnings up to a maximum of $46,300 in earnings a year. Doubling the pension would result in a 50 per cent income replacement. That combined with OAS benefits would combine for a replacement rate of 63 per cent, close to the 70 per cent recommended by experts to achieve an adequate standard of living in retirement.

And what about those thousands of workers currently holding their breath while a bankruptcy court judge makes a decision about their pension? There is a way to help them, too.

It's called a pension investment fund. The fund, which would adopt abandoned pension plans, would be created through a 0.1 per cent fee on stock market transactions. In essence, speculators - at the root of the recent financial turmoil - would be forced to protect pensions.

There are plenty of good pension ideas out there. In other words, there is a way to build a better pension system for all Canadians, but the way needs a will. Let's see if Canada's finance ministers are up to the challenge when they meet to talk pensions in Whitehorse next month.

Lana Payne is president of the Newfoundland and Labrador Federation of Labour. She can be reached by e-mail at lanapayne@nl.rogers.com. Her column returns Dec. 5.

Organizations: Nortel, Abitibi-Bowater, Statistics Canada OAS Energy and Paperworkers Union Fraser Papers Newfoundland and Labrador Federation of Labour

Geographic location: Canada, Abitibi, Whitehorse

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  • ronald
    July 02, 2010 - 13:27

    When a company goes bankrupt or moves out of canada pensioners should be #1 before other crediters. They should receive enough of the assets left from a bankruptcies to bring there pensions up to 100% funding ahead of other creditors receiving any assets. People who have given their lives to these companies deserve nothing less.

  • ronald
    July 01, 2010 - 20:14

    When a company goes bankrupt or moves out of canada pensioners should be #1 before other crediters. They should receive enough of the assets left from a bankruptcies to bring there pensions up to 100% funding ahead of other creditors receiving any assets. People who have given their lives to these companies deserve nothing less.