Finance ministers continue to miss the boat on pensions

Lana Payne
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Skyrocketing household spending, anemic business investment, a pension crisis, a European debt disaster and some nasty austerity medicine will all be on the radar of Canada's finance ministers when they meet Monday in Victoria.

Most of this economic bad news can be laid at the feet of the banking and financial crisis of 2008-2009. People who did not cause this crisis are still paying a steep price for the greed that led to that mess.

Austerity measures, courtesy of Stephen Harper and Tony Clement, will add to the pain and the price already being paid. And yet austerity doesn't apply to everyone. Big corporations who can afford to pay more are not being targeted to help. Instead, they will continue to be the recipient of massive handouts and corporate tax breaks.

Pockets full

In the meantime, corporations are hoarding about half a trillion dollars in cash and refusing to invest. They are also continuing to rake in big profits.

As an example, last week the banking sector reported $22 billion in record profits for the year. And this year while the federal government handed out massive tax cuts to wealthy corporate entities like banks, the banks handed out over $9 billion in bonuses to executives.

Governments continue to bolster the financial sector, through corporate tax cuts and private pension schemes designed to bring in another pile of management fees to the sector.

Indeed, this year's corporate tax cut - handed out at a time when corporations are hoarding cash as Bank of Canada Governor Mark Carney pointed out this week when he pleaded with Canada's business sector to start spending and stop relying on indebted Canadian consumers to keep the economy going - was a reckless and wasteful use of taxpayers' money.

The tax break contributed to the federal government deficit - a deficit that is now being used as an excuse to fire thousands of public sector workers, all in the name of austerity.

And then there's Ottawa's new private pension scheme, Pooled Registered Pension Plans (PRPPs). Don't be fooled. They are merely RRSPs by another name and are another coup for Canada's financial and insurance sector.

And sadly, they will not solve Canada's retirement security crisis.

Employers will not even have to contribute to these so-called voluntary workplace pension plans.

This new RRSP scheme represents a failure of Canada's finance ministers to deal with the train wreck coming our way - inadequate pension coverage and retirement security.

But once again the Harper Conservatives are ignoring the facts.

Not working

RRSPs have repeatedly proven themselves to be an ineffective and botched retirement security tool. Less than a third of Canadians actually contribute to them and they are used more as a tax break than as a real retirement savings tool.

According to a recent study by pension expert Monica Townson, there is about $600 billion in unused RRSP contribution room. Among people closest to retirement, 55-64 year olds, the typical person with an RRSP has saved about $55,000, according to Ms. Townson.

That's enough to provide about $250 a month in retirement income. And more than 11 million Canadians, over 60 per cent, have no pension plan and no savings.

Economist Michael Wolfson, formerly the chief statistician of Canada and now Canada research chair in population health modelling at the University of Ottawa, says the problem is not that Canadians lack an adequate "savings discipline." Rather the returns from RRSPs and private savings are inadequate and they know it.

Canadians just can't count on RRSPs to deliver an adequate safety net in retirement.

Ms. Townson and Mr. Wolfson were two of six pension experts who signed a letter calling on Canada's finance ministers to head off what is a growing retirement crisis by enhancing the Canada Pension Plan (CPP).

In their letter to the finance ministers, the pension experts say the CPP is fully portable and provides a relatively predictable, inflation-indexed, lifetime retirement benefit to millions of Canadians.

"Prompt action is warranted; should enhancements to the CPP be fully-funded, it is important that improvements be agreed to on a timely basis, as an extended phase-in period will be required."

No doubt Mark Carney's warning this past week regarding skyrocketing household debt is another troubling sign for Canadians struggling with saving for retirement.

"The greatest risk," he said, "to the domestic economy is household debt."

Canadian household debt has reached a record high, sitting at $6.2 trillion. Canada's fragile recovery has been oiled not by business investment, but by "debt-fuelled" consumer spending.

Canadian consumers kept the country afloat in the three years since the financial sector caused a worldwide economic crisis - a crisis that also wiped out billions in retirement savings.

The least we can expect is that our governments will respond with a pension option that ensures employers, too, are contributing to the retirement of the Canadians they employ; a pension option that ensures real retirement security for Canadians.

The question is whether Canada's finance ministers will push forward and do the right thing or whether they will continue to miss the opportunity for real pension reform.

Lana Payne is president of the Newfoundland and Labrador Federation of Labour. She can be reached by email at Her column returns Dec. 31.


Organizations: Pooled Registered Pension Plans, Harper Conservatives, University of Ottawa Newfoundland and Labrador Federation of Labour

Geographic location: Canada, Victoria, Ottawa

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Recent comments

  • NeedForChange
    December 28, 2011 - 18:09

    I agree with you on the fact that the PRPPs does not solve the current crisis any better than the already existing RRSPs do. PRPP might in fact attract even less potential money-savers as they do not offer the option to withdraw money when facing a financial crisis prior to retirement. I would be interested in reading an article on alternative potential solutions to the current crisis. I am also curious about your opinion on Target Benefit Plans (shared risk plans) as an alternative to Defined Contribution Plans and PRPPs

  • Townie
    December 17, 2011 - 09:53

    And yet the Platform of the Provincial NDP in the last election was to reduce the Corporate Tax rate.