Par Hassan Yussuff on jeudi, 24 mai 2012
(Check against delivery)
Sisters and Brothers, thank you for inviting me to speak to you this morning.
I bring you warm greetings from the Canadian Labour Congress, the national voice of 3.3 million workers in Canada.
Brothers and Sisters, I want to share with you a bit about the Canadian Labour Congress’ campaign to win a secure and adequate retirement for everyone in this country.
We have been warning for some time about the scale of this challenge.
Like the rest of Canada, Newfoundland and Labrador is rapidly growing older.
Today, there are about 23 seniors for every 100 working-age individuals in this province.
Just 25 years from now, this will more than double to 58 seniors for every 100 working-age individuals.
In a city like St. John’s, the median age (40.8 years) is already higher than the average for all Canadian cities, and St. John’s is ageing more rapidly than the average.
But the same dramatic changes occurring in Newfoundland & Labrador are happening across the country.
Just as our society is quickly changing, it’s becoming apparent that our retirement income system is unable to meet the challenge.
A large segment of the population approaching retirement in the next 25 years – millions of Canadians – will suffer financial insecurity and inadequate incomes in retirement.
About half of Canadians born between 1945 and 1970 and earning between $35,000 and $80,000 are facing at least a 25% drop in their post-retirement standard of living.
What happened to Canada’s retirement income system? How did we get to this point?
The basic problem is that two of the three “pillars” of Canada’s retirement income system are failing: workplace pensions, and private retirement saving.
Take workplace pensions.
Not so long ago, Canadians had an unspoken understanding with employers: Canada’s universal, public earnings-related pension plan, the CPP/QPP, would be limited to covering only 25% of workers’ replacement income.
In exchange, employers would make up the remaining income, providing secure, adequate workplace pensions for employees.
Today, that agreement with employers lies in tatters.
12 million Canadians – two-thirds of all workers, and three-quarters of workers in the private sector – have no workplace pension plan. And the problem is getting worse.
Workplace plans now cover only 33% of the labour force. In Newfoundland & Labrador, just 37% of workers were covered by a workplace pension plan last year.
Employers that once offered good defined-benefit plans are shrinking or abandoning them as fast as they can.
In the public sector, municipal governments and Crown corporations like Canada Post are trying to cut benefits and close their defined-benefit plans. I don’t need to tell you about the daily attacks being launched against public-sector pensions.
In the private sector, firms like Air Canada, US Steel and Caterpillar have sought cuts to pensions and the end of the defined-benefit pension plan.
Here in Newfoundland & Labrador, Vale Inco sparked a long strike at the Voisey’s Bay nickel mine when it set out to close its defined-benefit plan.
I don’t need to remind you that the federal government’s Export Development Corporation offered Vale $1 billion in financing while its workforce was on the picket line!
Employers are walking away from their pension obligations and leaving workers to fend for themselves.
Under the circumstances, workers are doing the best they can.
But left to our own devices, we’re not able to sock away enough for an adequate retirement income. Small wonder, since average real wages have barely budged since the late 1970s, and household debt levels have reached 150% of income.
Take RRSPs for example.
RRSPs have failed for 50 years to live up to their promise. Despite costing $7 billion in tax subsidies, RRSPs still offer no real benefit for the vast majority of Canadians.
Just look at Newfoundland & Labrador. In this province, over half of seniors’ income in retirement comes from just two sources: OAS and CPP. Another 25% comes from workplace pensions. Guess how much comes from RRSPs: 1.1%.
Only about one-quarter of tax filers contributed to an RRSP in 2009. The typical RRSP contribution took up just 6% of available contribution room.
In 2009, Newfoundland & Labrador tax-filers had over $9 billion left over in unused RRSP contribution room.
RRSPs mainly benefit the highest income-earners.
In 2009, 11% of Canadian tax-filers reported income over $80,000 a year. That same 11% of tax-filers contributed more to RRSPs than the bottom 89% of Canadian tax-filers combined.
In Newfoundland & Labrador, individuals with $80,000 or more in income make up 8% of all tax-filers, but account for 56% of all contributions to RRSPs.
In other words, the highest-earning 8% of tax filers contribute more to RRSPs than the bottom 92% of income earners put together.
In St. John’s, it’s even more extreme: that 8% of taxfilers accounts for 59% of all RRSP contributions.
RRSPs are geared to the richest among us, but they rip off just about everyone.
In March 2011, a study by Morningstar found that Canada has the highest mutual fund fees out of 22 countries surveyed in the report. With $660 billion of Canadians’ retirement savings invested in mutual funds, RRSPs are a scam that pays rich rewards.
To understand just how much money is at stake, consider the following. Say you put $10,000 in a fund with a 5% annual rate of return and a management fee of 0.5%. After 45 years your investment would be worth a little over $72,000, and the management fee would be about $17,800.
Now picture investing that same $10,000 in a fund with a management fee of 2.5% instead of 0.5%. 2.5% is a common fee for a mutual fund.
Instead of receiving $72,000 you would get just $29,500. And instead of paying $18,000 in management fees, your mutual fund company would take over $60,000 of your retirement savings!
Individuals trying to save for retirement are struggling with stagnant incomes and a financial industry that skims off too much of our retirement savings. And employers are throwing their workplace pensions overboard as too expensive or too risky.
As workplace pensions retreat and private retirement savings vehicles leave ordinary Canadians behind, the risk is that more and more Canadians will face financial insecurity in retirement.
This is tragic, because until recently, Canada’s public pensions produced a dramatic drop in the old-age poverty.
Canadian seniors saw a decline in the poverty rate after taxes and transfers from 28.4% in 1973 to 5.4% in 1997. Old-age poverty in Canada today is half the Organisation for Economic Co‑operation and Development’s (OECD) average, a huge achievement.
But public pensions in this country provide a low maximum benefit.
Many seniors live on low incomes just above the poverty line, and economic recession can lead to a spike in old-age poverty. Recently, the number of poor seniors has begun to increase.
There is a significant proportion of seniors living in low income in Newfoundland & Labrador’s cities and rural areas. Seniors living alone (especially women) face a much higher risk of poverty than Newfoundland & Labrador residents as a whole.
In Newfoundland & Labrador, 15.7% of residents lived in low-income in 2009. For unattached individuals aged 65 and over, the figure was 53.5%.
Seniors with low incomes (under $16,400) qualify for a public pension top-up through the GIS. But the total amount falls short of raising them to a decent standard of living. The maximum amount of OAS plus GIS is less than $1,300 for a single person, or $15,270 per year.
It’s a struggle to get by on OAS and CPP benefits.
The maximum monthly CPP benefit in Canada is now $986.67. But the average retirement benefit paid out in January was only $525.
The average monthly CPP retirement benefit in Newfoundland and Labrador in March was a full $100 less – just $425.54. That's the lowest of any province in the country.
In March, nearly 85,000 seniors in this province received OAS. Over half of these folks received GIS – a higher proportion than in any other province.
And only 6% of the seniors getting GIS receive the full benefit – the vast majority are getting by with partial GIS benefits.
About half of GIS recipients in this province are single seniors, who are the most vulnerable to poverty.
For a single senior, the most you can get from GIS is roughly $732 a month. OAS only pays a maximum of about $540 a month.
Newfoundland & Labrador’s Low Income Senior’s Benefit provides another $75 a month.
But added together, the maximum annual benefit for an individual ($16,170) is barely enough to lift a senior over the poverty line in a city like St. John’s ($15,865 in 2010).
Last year, the federal government added a small monthly top-up to GIS of $50 for single seniors and $70 for couples with very low incomes. CUPE, the CLC and seniors’ groups fought hard for better GIS benefits, and we should take credit for this.
The 2012 budget also commits the government to enrolling people for OAS and GIS benefits, instead of waiting for them to apply. This is something the labour movement and the NDP has urged the government to adopt.
But the small improvements to GIS don’t go far enough. And the government is taking away with one hand what they’re granting with the other.
Beginning a bit over a decade from now, the government will start denying seniors OAS and GIS benefits as they turn 65.
If 65 and 66-year-olds had been shut out of OAS and GIS in 2011, almost 700,000 seniors would have been affected.
If they couldn’t work more hours or find some other way to make up the difference, the number of these folks living in poverty would have more than doubled from 50,000 to almost 120,000.
The worst part is, there’s no justification for this. The Parliamentary Budget Officer, the OECD, and the government’s own studies have shown that OAS is sustainable.
Ironically, just after the new eligibility age is fully phased-in, the relative cost of OAS will begin falling anyway.
Trying to save money by restricting benefits to seniors who need them most doesn’t make sense.
As many as 15,000 new seniors in Newfoundland and Labrador will be denied OAS and GIS benefits when the changes are in place.
How are these people going to live? They’ll have to keep working – if they can.
As Newfoundland & Labrador's population grows older, and more seniors are at risk of poverty, who is going to pay the cost of our inadequate retirement savings?
In the first instance, cities have to meet the needs of seniors living in poverty and near-poverty.
Municipal governments provide a wide range of services to seniors: housing, public transit, senior centres, libraries and cultural and recreation services.
Many municipalities also provide property tax assistance programs, including full or partial tax deferral.
St. John’s has a Senior Citizen’s Property Tax Reduction. Mount Pearl has a Seniors’ Interest Credit and a property tax reduction for seniors. Corner Brook and Conception Bay South both have Senior’s Discounts.
Newfoundland & Labrador taxpayers also pay for provincial programs such as the Low Income Seniors’ Benefit and the 65Plus Plan under the Newfoundland and Labrador Prescription Drug Program providing prescription drug coverage for seniors receiving the GIS.
Without urgent action, cities and the Newfoundland & Labrador government will increasingly bear the brunt of the costs of our ageing population.
And keep in mind that provinces and municipalities are going to bear the cost of increasing the OAS eligibility age – even if the government says it will compensate the provinces.
If the changes to OAS were implemented in 2011, the federal government would have saved $3.5 billion and the provinces would have lost $500 million in tax revenue.
Friends, if we could ensure that future seniors have better pensions, the pressure on provincial and municipal budgets from an ageing population would be greatly reduced.
It’s time we start over with the fundamental principle that every single worker in this country deserves a decent and secure income in retirement.
No matter where they work, private or public sector.
That means the right to a defined-benefit pension, the type of plan that corporate executives and politicians make sure they set up for themselves. Canadians already enjoy a secure, low-cost and fully-portable defined-benefit pension. That’s the Canada Pension Plan.
The CPP/QPP delivers secure, predictable, inflation-indexed retirement benefits for life, at a far lower cost than the fees charged by banks and mutual fund industry. It will continue to do so for the next 75 years and beyond. And best of all, virtually all employed and self-employed Canadians already belong to it – private and public sector.
The problem is that the retirement benefits the CPP/QPP pays out are set too low to provide an adequate income in retirement.
Expanding the CPP is the lowest-cost way to dramatically increase the security and adequacy of retirement benefits for workers without workplace pensions and those with defined-contribution plans.
The CLC’s plan is to double future CPP benefits by gradually phasing-in an increase in contributions over 7 years.
By increasing CPP contributions by just 0.43% of pensionable earnings each year for 7 years, we can achieve a 100% increase in future CPP retirement benefits.
For a worker earning $30,000 per year, the initial cost would be about 6 cents an hour, or $2.27 a week. That’s about the cost of 2 songs downloaded from iTunes. Or for those of you without the latest gadget, it’s less than the cost of a medium double-double with a donut at Tim Hortons.
We’ve crunched the numbers, and the costing behind our plan has been scrutinized and verified by Bernard Dussault, former Chief Actuary of Canada.
Our plan benefits young people retiring 40 years from now, who will fully benefit from a doubling of CPP benefits when they leave work.
Today’s youth are often working at low-wage, insecure jobs, while struggling with growing levels of student debt.
An expanded CPP would give them a more adequate retirement income at a far lower cost than they would be able to save on their own.
Without an expanded CPP, young people in the future will face an enormous inter-generational transfer of wealth.
Huge increases in Old Age Security and the Guaranteed Income Supplement will be needed to pay for baby boomers who weren't able to save enough on their own, or who saw their retirement savings depleted amidst the three stock-market crashes of the last 15 years.
Our plan benefits older workers approaching retirement, who would see increases in their retirement benefits.
Our plan benefits workers with no pension plan, but it also benefits workers fighting to defend their workplace pension plans.
An increase in CPP benefits would permit employers and employees to negotiate a reduction in plan contributions and benefits.
It would allow them to shrink any unfunded liabilities that exist in the plan, while reducing the tax expenditures that support workplace pension plans. It would narrow the gap between private and public sectors by lifting the boats of all workers.
The CPP provides a fully portable, secure, inflation‑indexed, defined-benefit pension at a very low cost.
The CLC proposes to phase in a doubling of CPP benefits from 25% to 50% of average earnings on a pre-funded basis. Additional contributions from workers and employers would be invested to pay for higher pensions in the future.
I said earlier that the average monthly CPP retirement benefit in March 2012 was just $525.
Our proposal would increase the average benefit each year, and double the average benefit when fully implemented. In fact, future benefits will be higher since they will be boosted by any increase in real wages in the future.
A 100% increase in future CPP benefits can be financed by raising CPP premiums by only 60% over seven years. It would take approximately 40 years for the new system to be fully mature, but a higher pension credit would be earned in each year following a decision to expand the CPP. Partial benefits would be earned while the premium increase is being phased-in over seven years.
We also want an immediate end to old-age poverty in this country.
Hundreds of thousands of Canadian seniors live in financial insecurity. The GIS helps support 1.7 million low-income seniors. But the average benefit (a bit over $492 in January 2012) is too low to lift many out of poverty.
Our plan is to boost the incomes of poor seniors through an immediate 11% increase in the GIS.
This would have several benefits. First, it would ensure that no senior, current or future, will ever retire into poverty (since public pensions are adjusted for inflation).
Second, money put into the GIS will be spent locally by seniors for their essential needs. Such direct spending into the local economy represents an important and effective form of economic stimulus at a time when it is badly needed.
Finally, workers who worry about looking after their parents in retirement can rest assured their parents will be able to provide themselves with the basics. This is especially true for workers facing their own retirement years with elderly parents and loved-ones to care for.
The CLC and the labour movement have waged an incredible campaign to put this on the agenda. We launched the Retirement Security for Everyone campaign in September 2009, right in the midst of a financial crisis and economic recession.
At the time, Finance Minister Flaherty said there was no way the government would consider an expanded CPP.
Since then, our campaign has won support from every corner of society. Union members, retirees, community activists have organized townhall meetings and rallies from one end of the country to the other.
In May 2010, mayors and city councillors meeting at the Canadian Federation of Municipalities unanimously endorsed our demands – an incredible statement of support.
From coast to coast, university campuses and student groups like the Canadian Federation of Students passed resolutions in support of our campaign.
Anti-poverty organizations and community coalitions got behind us.
Dozens of academics and pension experts endorsed our proposals.
Even conservative newspapers like the Calgary Herald published editorials in support of CPP expansion.
Union leaders and activists lobbied every single member of Parliament in their constituencies.
Finally, in June 2010, the federal minister and provincial finance ministers premiers indicated they would support an expansion of the CPP.
But the financial industry, insurance companies and groups like the Canadian Federation of Independent Business lobbied hard against us.
They were successful in getting the government to stall CPP expansion. In December 2010, the government announced that it would push ahead with the financial industry’s model, the Pooled Registered Pension Plans.
These groups opposing CPP expansion favour the PRPP idea because it will be voluntary, and will not require employers to pay a single cent.
The federal government can’t guarantee that savings will be protected against inflation or future market turmoil, and it can’t guarantee that the management fees charged by private sector brokers won’t bleed away future earnings.
In fact, PRPPs are shaping up to look a lot like group RRSPs.
To be sure, for a small fraction of high earners, PRPPs are very attractive.
High income-earners are most likely to max out their RRSP contributions.
Not surprisingly, it is self-employed professionals with high incomes – doctors, lawyers, and certified general accountants – with no access to workplace pension plans who are looking for additional and lower-cost tax-assisted savings vehicles.
The groups opposed to CPP expansion are the same ones that want to free-ride on the public purse.
With no CPP expansion, GIS and Allowance expenditures are projected to climb from $9.4 billion in 2012 to $23.8 billion in 2030.
Groups like the CFIB want to deflect attention from this looming tax bill by pointing at supposed gold-plated pensions in the public sector.
Make no mistake, these attacks are aimed directly at women, who now make up half of workplace pension plan members, and who are most likely to be employed in the public sector.
These women are earning decent, but in no way extravagant, pensions. The average public-sector pension in 2009 was about $18,000 a year. Hardly a “gold-plated” pension.
The CFIB likes to paint our plan as a “job-killing payroll tax-hike.” But CPP contributions do not discourage employers from hiring. Beginning in 1997, CPP contributions were nearly doubled over a five-year period, during which the unemployment rate fell from 9.1% to 7.6%, before continuing to fall.
Instead of spending precious government resources trying to sell Canadians on a scheme designed by and for the financial services industry, the federal government should just accept all the evidence it has, listen to the pension experts and expand the Canada Pension Plan as soon as possible.
To achieve an expanded CPP, we need the support of two-thirds of the provinces representing two-thirds of the population.
At the next meeting of Finance Ministers taking place this summer, a specific timeline for expanding the CPP will be discussed. We need to keep the pressure on all provinces and the federal government to make this an urgent priority.
Friends, I need your help. I urge you to contact the offices of Tom Marshall and Premier Dunderdale and let them know where you stand on the issue of retirement security and CPP expansion. And tell your friends and neighbours. I can’t stress the importance of seniors’ activism enough.
Together we will win an expanded CPP and improve retirement security for everyone.