By Ray Rivers
September 23, 2016
BURLINGTON, ON
Imagine a Canada where after a lifetime of working everyone could look forward to receiving a guaranteed two percent of the average salary for every year they worked in the form of a pension.
Working for 30 years would earn a pensioner 60% of that old salary or wage. That is what government workers, educators and those who still have defined-benefit company pensions receive. But that last category, those with a defined-benefit private company pension, is getting smaller.
“A stake in the heart of company pensions.” That is how one news outlet labelled the agreement reached between General Motors and its employees’ union Unifor. In exchange for a commitment to expand auto jobs in Ontario, GM will discontinue it’s old lifetime defined-benefit pension for new workers. Low interest rates, which have handicapped earnings for pension plans, is only part of the reason GM made getting rid of pension plans its priority.
Modern automotive production lines call for a highly skilled labour force – who should be entitled to fair pension plans.
In our modern globalized world corporate entities come and go, and can be gone long before all their former employees have departed, for heaven or that other place, and are still claiming the lifetime pension obligations they are entitled to. Just look at Hamilton’s US Steel company, formerly Stelco, which had to be bailed out by Ontario taxpayers. The US corporate giant, snubbed its legal commitment to keep jobs in Hamilton smack in Mr. Harper’s face. And then it walked away from its responsibilities to its pensioners, expecting the Ontario government to pick up the pieces.
Canada Pension Plan enhancement was a Trudeau election promise – Premier Wynne made sure he stuck to it and that the other provinces came around as well.
It is no wonder Premier Wynne was so keen on expanding public pensions for the average working person. And she takes some credit for catalyzing Canada’s leaders into enhancing the Canada Pension Plan (CPP). The CPP payments will move up to one third of a person’s former working income (from a quarter) under the recent federal/provincial agreement. Of course CPP enhancement was a Trudeau election promise as well, so it is questionable whether the province really needed to expend the $70 million it did, mainly promoting a program it expected/hoped would never see the light of day.
A national universal pension program is the ultimate in pension evolution, particularly in a more globalized work economy. The days of the paternalistic company, managing pension plans and other aspects of their employees lives, are so yesterday. In this vein the former Harper government may have been uncharacteristically progressive, mulling a shift of federal pensions to the defined-contribution model. However, his reluctance to even budge the CPP upwards at the same time argues that he was just being mean-hearted, again.
These so-called defined contribution plans are not anything like a substitute for a guaranteed pension, as one heads into the down-days of one’s life. For one thing people become more risk adverse as the the sands of time trickle down that hour-glass. And there is nothing like knowing you’ll be able to budget for that next trip to see the grandkids in Calgary when you are seventy-five years old. It’s the pensioner’s money except that the financial institution contracted to prepare and hold the plan is not doing this out of the goodness of its heart – like everyone who touches gold expect some of it to rub off on its hands.
Figuring out what you are going to actually have when retire isn’t supposed to be as difficult as it appears to be.
These defined-contribution plans gobble up retirement tax-credit space. And since they are employee contributory, in most case, they use up money they might use to buy other investments.
Defined-contribution is an awkward and unfortunate name since these financial instruments are nothing more than an RRSP bought on your behalf by your company.
And the truth is that RRSPs can turn out to be a curse, as many pensioners with respectable incomes post-retirement are finding. Those forced to cash in their RRIFs seem to paying more taxes now than when they were actually employed.
Someone in the Department of Finance should run the numbers. I’ll bet that eliminating RRSPs and raising the CPP to an even more respectable level might just net-out financially. But that would mean making our tax system less complicated. And what about the pensionable earnings of tax accountants and lawyers who helped create this morass?
Ray Rivers is an economist and author who writes weekly on federal and provincial issues, applying his 25 years of involvement with federal and provincial ministries. Rivers’ involvement in city matters led to his appointment as founding chair of Burlington’s Sustainable Development Committee. He has been a candidate in a past provincial election.
Background links:
Defined Contribution – Stelco Bailout –
Two points:
1. It is the Canadian Labour Congreve that deserves the credit for its decade long fight to get the CPP modernized in a more compassionate and yet cost effective way
2. Another shovel full of dirt on the Harper Legacy is that the $70 million had to be spent because of his intransigence on the necessary change. Two thirds of Canadian employees do not have a pension from their workplace and most jobs today are precarious at best. For this Wynette deserves her due praise.
A defined benefits plan that pays you 60% of what you earned before retirement is a pretty rich plan. I have a defined benefits plan and it is nowhere near that figure.
I’m not an economist, but I do recognize the broad picture when I see it. This shell game reminds me of 1983 when, adopting Mussolini’s dictum “Fascism is corporatism”, the Reagan administration began dismantling the Civil Service Retirement System in favor of the Thrift Savings Plan, moving public money, through an appointed administration staffer, into the hands of administration favored private company stock holdings. By 1990 the retirement reservoir was heading into complete collapse and many employees felt no option but to leave government work. The staffer was replaced but the damage to the employees was done. Of course, the favored companies skated off with the money, repaying the administration with support for the next election cycle. This happened simply because the average American understands economics even less than I do, and can’t see a political philosophy when it is staring him in the face while taking his wallet.