Worthy of note: a banker is touting the benefits of bolstering CPP

Lana Payne
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The considerable voices urging the federal and provincial governments to expand the Canada Pension Plan (CPP) in some fashion just got an unlikely ally.

A banker. And not just any banker. The president and CEO of CIBC, Gerry McCaughey. He told a pension conference in New Brunswick last week all about the benefits of CPP. He also said that the country's pension system needs fixing.

Banks, not that you need reminding, are the people who peddle RRSPs and other so-called private retirement investment vehicles that are totally enslaved to the performance of the markets. They also include outrageous management fees.

So when a banker trumps the benefits of a public pension system, one ought to take note. It means even they recognize that we are heading for a cliff.

It's not the first time a banker has said that RRSPs are failing to do the job with respect to providing retirement security.

Don Drummond, now retired from the banking industry, proclaimed back in 2009 that after 50 years of promoting RRSPs, we should conclude they haven't turned out as envisioned.

"I don't know why we don't just recognize this and make the needed adjustments to the retirement income system," said Mr. Drummond.

What both bankers are saying, and not so indirectly, is that RRSPs are a dismal failure in terms of providing income security in retirement for the vast majority of working Canadians.

Since the stock market crashed in 2008-2009, Canada's labour movement has been advocating for a stronger public pension system, an enhanced CPP that pays 50 per cent of pre-retirement earnings, rather than the 25 per cent it pays now.

The idea has gained traction and support from many pension experts and the majority of provincial premiers and finance ministers. Not surprisingly, the Harper government is the problem. It has refused to act, despite what many recognize as a looming pension and savings crisis.

Mr. McCaughey said last week that Canada's pension system needs an overhaul and Canadians need more "certainty and simplicity" from their savings than is currently the case with RRSPs or tax-free savings accounts.

The banker is promoting the idea that Canadians should be able to voluntarily pay more into CPP. The labour movement wants a mandatory expansion with both employers and employees required to contribute more to the pension plan, thus increasing the secured retirement benefit for working Canadians.

That is a key and important difference, but there is much on which the two unexpected allies agree.

Both believe a predictable retirement payout is important.

Mr. McCaughey noted in his speech to the National Summit on Pension Reform that his proposal would "give Canadians the choice to put more aside with the confidence of clearly knowing what benefits it will bring. It would improve the future of Canadians who choose to opt in - through forced savings and no withdrawals - over the arc of 40 years."

In other words, unlike RRSPs, CPP is a true pension plan. You can't withdraw from it during your working life, the way you can with RRSPs.

Old age insecurity

He noted that one of the key problems with today's pension system for the vast majority of Canadians is the uncertainty of outcome. In other words, today's system is one of insecurity versus security.

The banker went on to say that a simpler, stronger and easier-to-understand pension system is better for the economy, which in turn is better for banks.

Mr. McCaughey noted that forecasts (coupled with a declining savings rate) indicate that young Canadians can expect to see a whopping 30 per cent drop in their standard of living when they retire.

"We're not talking about the normal reduction in income that individuals typically see in retirement. We are talking about a real and significant decline in living standards."

By speaking in favour of CPP as an important and critical part of Canada's retirement system and by agreeing it needs to be expanded in some fashion, Mr. McCaughey has added fuel to the pension debate in the country, but perhaps most interestingly is he has contradicted the Harper government's fend-for-yourself mantra.

This is significant given he represents and works for an industry that promotes private savings and fend-for-yourself options - options that are clearly not working for the vast majority of Canadians.

One thing is for certain, the voices telling the Harper government to keep the status quo are fast being drowned out by those who recognize that action is needed and is needed now.

LanaPayne is president of the Newfoundland and Labrador Federation of Labour. She can be reached by email at lanapaynenl@gmail.com. Her column returns March 9.


Organizations: CIBC, National Summit on Pension Reform, Newfoundland and Labrador Federation of Labour

Geographic location: Canada, New Brunswick

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Recent comments

  • Aunt Lizzie
    February 24, 2013 - 00:44

    Personally, I think the CPP should be scrapped altogether- or at least made optional. I don't need the government to take a chunk of every paycheque I earn and invest it so they can refund a part of it to me when I retire. Let me be responsible for managing my own money and retirement. If some people don't have the discipline or common sense to save their own money, and would rather give it to the government to save for them, then so be it. But it should be a choice.

    • a business man
      February 26, 2013 - 22:48

      Great Post! I absolutely agree. CPP only gives you part of your own money back because they take some of your money and redistribute it to other citizens who have put less into the system. For that reason alone, I too beleive that the CPP should be abolished. I would end up with more money if I were allowed to invest my money for the sole benefit of my own pension. But as per the laws of Canada, there are many completely legal ways to avoid CPP and redirect those monies to a pension fund that only benefits yourself. I recommend every one talk to an accountant or tax lawyer to find your own way out of the CPP and thus keep more of your money for yourself.

  • Barry Sadowick
    February 23, 2013 - 19:59

    RRSP's only work in a growing market with high inflation. If you where working these times in your life your pension would be great. A lot of self employed people invest in their adventures and if they don't turn out or have the time to succeed they are without a proper pension. The laws can be changed leaving savings at risk. RRSP and management fees eat up the savings in the beginning of a plan by a great amount.