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Hill Dispatches: Expand the CPP-QPP or more cash for the investment industry?

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It might have been a good idea to have a national discussion on Canada's pensions system, at this time. The destructive impact of the stock market implosion of 2008 and the bitter experience of the Nortel retirees should have put Canadians' retirement income squarely on the policy front burner.

It would seem an opportune and appropriate time to consider our options, as a country, 45 years after the creation of the Canada and Quebec pension plans.

There are many questions we could consider.

How do we go about guaranteeing pension income for those who are not covered by the current plans?

How do we move toward a dignified retirement for those who are covered by public plans, but have little or no other source of retirement income?

How do we protect people who are victimized by the sale or bankruptcy of companies and the fickle humours of the equity markets?

What are the costs and benefits of the various feasible options?

And what price, if any, would Canadians be willing to pay for a better retirement income system?

Let the banks and insurance companies take control

Instead of that considered discussion we're getting what the Liberal finance critic Scott Brison calls a half measure and what Ken Georgetti of the Canadian Labour Congress describes as a "piecemeal approach that will reward banks and insurance companies."

So, get ready for a new acronym in the Canadian financial firmament: the PRPP -- the Pooled Registered Pension Plan.

That acronym is the response the federal government and the provinces cooked up a year ago, faced with so many desperate people -- people who had, in many cases, seen their invested savings evaporate nearly overnight; or, in a number of even more disastrous cases, had watched as their company pension benefits were decimated in an instant.

The government response to all that is to make it possible for self-employed Canadians and small businesses to take part in what will be, in effect, giant RRSPs -- all administered by the same folks who presided over the huge retirement savings losses of 2008.

Have Canadians had a chance to consider their options?

When the NDP's Nycole Turmel asked the government why it did not opt for the less costly and far more effective option of expanding the Canada Pension Plan, the Prime Minister answered that "Canadians are not looking for a hike in their CPP contributions."

Maybe not.

But have any options been put in front of the Canadian people?

On the long gun registry issue the Conservatives like to argue that public opinion is, in large measure, determined by what question one puts to Canadians.

Ask Canadians if they want something called "gun control," and a great many say yes.

But explain to them that the Government is, of course, committed to controlling guns, but that the registry is not a necessary part of that enterprise, and then, apparently, Canadians will see the light.

Whatever the merits of that argument -- how would Canadians react if given the following choice?

1) You can have an enhanced and expanded, guaranteed public, defined-benefit pension; but you will have to pay higher CPP contributions . . .

Or  . . .

2) You can have a parallel, private sector, defined-contribution plan, which will require paying fees to large financial corporations who will invest your savings in the stock market . . .

Questions ... and facts

It depends on how you frame the question; and it also depends on what facts you put before the people.

Here is one fact, for instance.

By OECD standards Canada's CPP/QPP system is relatively niggardly.

Other countries similar to Canada provide for much more generous, public, guaranteed pensions.

In the USA they call it "social security" and the maximum benefit is about $30,000 per year. The maximum benefit in Canada is less than $12,000 per year. Even if you add Old Age Security to that (at a maximum of less than $7,000 a year) the total is still far below U.S. social security.

And here is another fact.

The Canadian pension system is deemed by experts to have three tiers. The first two are Old Age Security and the CPP/QPP. The third tier is the system of tax supported measures such as the Registered Retirement Savings Plan (RRSP).

That third tier does not come free.

In 2010 that tier of the retirement income system cost about the federal government alone about $29 billion in "lost" tax revenue. And it cost billions more to the provinces as well.

Plus, these "third tier" programs are directed at a minority of mostly higher income Canadians.

And -- as a study by the provincial finance ministers pointed out -- the investment industry that runs these plans is very profitable, but has had "little success in filling the gap in retirement savings" even among its more affluent-than-average clients.

Tellingly, the same report adds: "Where the industry has been successful, such success has been accompanied by some of the highest management expense ratios in the world -- particularly for mutual funds."

Expanding the CPP-QPP:  a "no-brainer"?

And so, why deal with the current pensions challenge by giving yet more to the well-fed financial industry, when Canadians already own another instrument, the CPP/QPP?

In a paper she did last year for the Canadian Centre for Policy Alternatives, respected pension expert and economist Monica Townson pointed out that expanding the CPP/QPP, would "address the issue of coverage, security of benefits and low cost of administration -- all key objectives of pension reform."

The President and CEO of the CPP Investment Board, David Denison -- hardly an equality-obsessed, Occupy Movement radical -- unequivocally supports an expanded CPP.

"A mandatory national plan creates scale and certainty of cash inflows that permit the effective pooling of ... risk." He told an audience of actuaries two years ago, "With no dependence on a plan sponsor, and so no solvency risk, we are able to manage the Fund from a sustainability perspective -- in our case, over the span of 75 years -- rather than from the triennial solvency funding perspective of an employer-sponsored defined benefit plan. This is an enormous advantage."

In other words: The CPP-QPP is backed by the Canadian and provincial governments and can look to the long term, without worrying about the daily ups and downs of the markets. And, despite its relatively low benefit payouts, the CPP-QPP has proven itself over time to be a cost-effective and fair instrument for supporting retired Canadians.

Who would make a profit?

Both Townson and Denison make the point, implicitly if not explicitly,  that expanding the CPP would not cost the government any more than the proposed PRPP.

And, of course, expanding the CPP would not entail transferring huge management fees to private financial institutions.

Now, maybe that's why we're not going the expanded CPP-QPP route.

When the whole question came up, some in this federal government may have been asking themselves, and each other: Why should we engage in pension reform if no private sector corporations will profit from it?

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