By Ray Rivers
September 4, 2015
BURLINGTON, ON
Prime Minister McKenzie King introduced the first pension plan.
It’s the closest we come to socialism, excepting welfare and universal health care. The old age pension, a national universal pension was first established in 1927. William Lyon Mackenzie King delivered on his campaign promise to create Canada’s first national pension plan. It was modest and income-weighted but welcome relief for Canada’s needy seniors, allowing them to live out their remaining years in dignity, or at least out of starvation.
Prime Minister Louis St. Laurent improved on the Canada Pension Plan McKenzie King created.
In 1952 Louis St. Laurent reformed the pension program, which had barely survived the great depression and WWII, into today’s Old Age Security (OAS). Over the years the OAS has been tweaked, adding an income supplement for those in need, reducing eligibility from 70 to 65 years of age, and inflation-proofing it through indexation. Mr. Harper has partially reversed these progressive changes by deferring OAS eligibility by two years to 67, while his predecessor, Brian Mulroney’s 1985 attempt to remove indexing collapsed before a crack squad of raging grannies.
The OAS is not the only retirement goody that Ottawa offers. There are registered retirement savings plans (RRSPs), initiated by Diefenbaker, which allow deferred taxation; registered interest tax-free savings accounts, started by Harper; and the Canada Pension Plan (CPP), established in 1965 by Pearson. But unlike OAS, which is essentially a welfare program for seniors, these are contributory plans, though the CPP is co-funded by employers.
It is something everyone is going to need – make sure you are satisfied with what whichever government we elect is giving you what you think you need.
Unlike the OAS which is an entitlement, the pensioners actually are owed the money socked away in these plans, something governments sometimes seem to forget. For example, since Canada has no inheritance tax, the government requires us to continually reduce the value of our RRSPs beyond age 71, whether we need the money or not.
And then there are the myriad of private plans, more now being offered as ‘defined contribution’ rather than ‘defined benefit’. These plans are typically managed by intermediaries, insurance companies or mutual fund managers, who invest the retirees’ future into the vagaries of the market for better or worse, depending on whether the market and interest rates are up or down.
There are so many opportunities for today’s seniors to harvest their retirement earnings that Maclean’s Magazine ran an article (September 15, 2014) titled “Old, Rich and Spoiled”, claiming that today’s retirees are “the most prosperous generation ever”. Despite the inflammatory headline there is no doubt this generation’s seniors are better off than preceding ones. But there are still seniors living below the poverty line and surveys show there is great financial insecurity among a majority of Canadians being put out to pasture.
Notrel in its day was a great multi-national company that failed to keep up with a rapidly changing technology – it also failed to ensure that its pension obligations were met – the provincial government had to pick up that tab.
Private company pensions look good if you worked for the right company, the one that might still be in business through your retirement, unlike we saw with Stelco or Nortel. Even my former employer, the federal government, unilaterally decided to downgrade my superannuation package recently. If you can’t trust the feds to keep their word, who can you trust? In the case of Nortel, the Province has had to take over paying the retirees.
And that is part of the reason why Ontario’s premier, after petitioning the federal government to ramp-up CPP – and being shown the door – is developing her own pension plan, the ORPP. Notwithstanding her understanding that an enhanced CPP would be a better route to go for national portability and consistency, she has little choice but to go it alone. And the provinces have primary jurisdiction over labour matters, which is why Quebec has its own version of CPP.
As a result the provinces can find themselves bailing out defunct pension plans for companies, like Nortel, when they go belly up. Then Ontario also has been topping-up the federal OAS, through its GAINS program. So it has a legitimate dog in this issue, a right to protect the lot of Ontario seniors. And there is broad support for change in other provinces beyond Ontario, judging from the interest the Premier has churned up with other provincial leaders in the Council of the Federation.
Ontario’s plan would only apply to those currently without a company pension plan. It would ‘level the field’ with employees in the banking, insurance, municipal, teaching, and civil service sectors of the economy. Someone who has been employed for 30 years would typically receive 60% of his/her salary as a retirement pension, as most of the institutional plans offer.
But Mr. Harper will have none of it, refusing to change CPP and even refusing to help Ontario reduce the costs of its planned ORPP by harmonizing it with the CPP for collection and management. That is something which would cost the federal government very little but would save debt conscious Ontario from setting up a duplicate bureaucracy.
They needed each other on the pension issue – will the Ontario idea of a provincial pension plan prevail? Quebec has its own pension plan. The federal plan as it stands now is not meeting the needs of many Canadians.
Whatever Mr. Harper’s reasons, he is using Canada’s seniors and future seniors, as fodder in his war against Ontario’s premier. As could be expected, Premier Wynne has responded in kind, directly supporting Liberal leader Justin Trudeau, who has committed to modernizing the CPP. And justifiably, since so much of Canada pension framework of was developed by Liberal governments.
The PM is right that refreshing the CPP will add costs to the employers’ payroll, though it should allow the eventual phasing out of the myriad of piecemeal company plans. And that will reduce labour costs for business in turn, while enhancing labour mobility.
Come voting time, pension issues may well be a low priority for young families struggling to manage new families and their first home, where every dollar counts. And the issue will have little, if any, direct payback for seniors already living through their golden years. But making our income systems more equitable and secure is an issue that affects us all as a society.
Fortunately there are clear choices on this issue in front of the voting public. In that regard, Mr. Mulcair has announced that he would call a provincial-federal meeting to reform the CPP within six months of becoming PM. Given his persistent ranking at the top of the opinion polls that must be music to Premier Wynne’s ears, though we shouldn’t expect her to also campaign for him.
Ray Rivers writes weekly on both federal and provincial politics, applying his more than 25 years as a federal bureaucrat to his thinking. Rivers was a candidate for provincial office in Burlington where he ran as a Liberal against Cam Jackson in 1995, the year Mike Harris and the Common Sense Revolution swept the province. Rivers is no longer active with any political party.
Background links:
OAS Canada’s Pensions World Pension Systems
CD Howe on Pensions Mulcair Harper
Federal Pensions GAINS ORPP Wynne
On this Labour Day weekend we should pay homage to the struggles of organized labour to fight for pensions. It was the Canadian Labour Congress that initiated the current push for the transformation of our antiquated CPP and we owe it to those who have struggled over many decades to achieve fair compensation in the workplace which includes adequate pensions to allow seniors to spend their last years in the dignity they deserve. We should also bring Harper out of his cubbyhole to explain:
• In 1995, wasn’t it the then Reform Party MP Stephen Harper who told the Star that the CPP should be scrapped and replaced by some form of privately run RRSP?
• In 1998, wasn’t it the same Stephen Harper who dismissed the newly restructured CPP as a vehicle for giant government “boondoggles?”
• In 2001, wasn’t it the same Stephen Harper who with five other prominent Western rightists penned what became known as the firewall letter that called on Alberta to drop out of the CPP and set up its own provincial scheme?
• Wasn’t it the same Stephen Harper who as the head of the Canadian Alliance repeated his Reform critique, denouncing CPP premiums as burdensome taxes?
• In his own hypocritical fashion, Stephen Harper is expected to receive about $180,476 a year in retirement benefits from the Canadian Government (Per The Globe and Mail)
Two-thirds of Canadian workers are still without a pension, other than the minimal support the present CPP provides. Harper’s attack on Ontario Premier Wynne’s ORPP echoes his core and unchanging belief that the CPP is just and only a burdensome tax.
Free Canada, Jail Harper!
Questions that should be asked of any retirement plans include: What is done with the money as it accrues in the fund? Is it invested toward money making returns, and if so under whose oversight is this done?
I say this because I came into the U.S. Civil Service under the Civil Service Retirement System. Reagan then took over, collapsing the CSRS and introducing the Federal Employee Retirement System (FERS) under which the accrued money was invested by unelected, barely visible members of the Administration into companies that had been or were paying off the Republican Party through campaign donations. So many of these companies went into bankruptcy that the FERS program nearly collapsed, making retirment a lost dream for many. It was only when Clinton took office that FERS regained its footing through the replacement of what had essentially been henchmen in a Ponzi scheme with open, competent and honest administrators.