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Layton and Harper weigh in on pensions and benefits

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					                                                                         PENSIONS & BENEFITS




     Layton                                                                                             Harper




   FACEOFF:
      Layton and Harper weigh in
       on pensions and benefits.
BENEFITS CANADA   spoke separately with federal Con-   Q: What is the biggest retirement issue facing Canadians?
servative Party Leader Stephen Harper and federal      JL: I think there are several key issues, actually. When it
                                                       comes to private pensions, there is a real problem in the
NDP Leader Jack Layton in April to get their per-      legislation governing what happens in the event that a
spectives on retirement and healthcare issues,         company faces bankruptcy. We’re seeing that pensions fall
which have attracted much public attention ahead       way down the list, after many other creditors, when it
                                                       comes to what should be protected. We’ve seen this
of an election. Layton and Harper shared their views   recently in the Stelco matter, the Air Canada matter and,
on the current system and the changes they would       of course, we saw it with the firm the Prime Minister
make if in government. Prime Minister Paul Martin      himself owned at one point. It’s an ongoing problem
                                                       where banks move into position in front of the pensions
was unavailable for questions.                         and therefore jeopardize essentially that deferred income
                                                       that was part of a payment to the worker.
                                                          Secondly, we really feel that an examination of porta-
By Anna Sharratt & Joel Kranc
                                                       bility of pensions needs to be conducted, because we end


www.benefitscanada.com                                                                                 JUNE 2004     65
 “We don’t want to consign people to
 abject poverty or have them have to
  cheat in order to survive. And that’s
   really what we’re creating now.”
                                                   —Jack Layton
     up with a society in which those who are fortunate            to save for their retirement under reasonable limits, so I
     enough to be either in one job with a decent pension          do support examining our retirement system for ways to
     plan or move between employment opportunities that            increase the amount Canadians can shelter from taxation.
     have reciprocal agreements, end up with a pension that        Over the past few years, Paul Martin as Finance Minister
     might be something you could sustain yourself on.             and more recently as Prime Minister has let the RRSP
     Whereas others who don’t end up in those sorts of jobs        limit lag behind inflation from the level it was at in 1995.
     end up facing abject poverty or the inability to take a       Although next year’s level will be slightly ahead of the
     retirement at all.                                            inflation-adjusted level, Canada’s limits are lower than
                                                                   those in the U.S. and the U.K.
     SH: Canadians deserve to know that their pension, both
     private and public, will be there when they retire. The       Q: Does the current RRSP system combat wealth inequality
     government needs to continually ensure both the sustain-      or foster it through its structure?
     ability of current pension programs and actively encour-      JL: RRSPs don’t help us much when it comes to reducing
     age savings by all Canadians for their retirement.            inequality. Because they are a way for people with moder-
                                                                   ate or high incomes to shelter some of that income for
                                                                   retirement, [for] free, or at a lower tax rate. But for a sig-
     Q: What about the foreign content rule? Would you raise the   nificant portion of the population, it’s just not possible to
     30% limit at this point?                                      invest in an RRSP. There’s not the disposable income at
     SH: It is important for hardworking Canadians to have         the end of the month to be able to put into an RRSP.
     options in order to maximize their retirement benefits.       What you end up with is a higher polarization of our soci-
     As a result, I would support raising the foreign content      ety in senior years, where the gap between the rich and
     rule. However, to prevent market disruptions that             the poor seniors is even greater than the gap between rich
     could result from numerous portfolio adjustments and          and poor workers.
     to ensure a smooth transition, I would consult with               On the other hand, what’s good about the RRSPs is it
     market professionals.                                         gives those people who aren’t in a pensioned workplace
                                                                   something they can do to plan for retirement. So we
     JL: We haven’t been advocating that because we think          favour the maintenance of RRSPs but the continued
     that investment in our country is important. And it’s         growth of the allowable contributions every year is actual-
     supposed to be one of the benefits of the RRSP process        ly a very expensive thing for government to do. Because
     that it creates the opportunity for people to invest in       it’s denying to government a tax revenue that it needs.
     Canadian businesses and gives our capital markets here        That tax revenue, instead of being paid to the govern-
     for Canadian businesses a bit of a boost. In other words,     ment, is flowing into the long-term savings of that part of
     it’s helpful for retirement but it’s also helpful for our     the population that can afford RRSPs. So it tends to
     economic development.                                         increasingly polarize. We would rather see the base pen-
                                                                   sion, the CPP benefits, improved, as a way of approaching
     Q: Would you raise RRSP limits?                               retirement assistance, more than we would RRSPs.
     JL: We would leave them where they are. The details of
     our policy will be released quite soon in terms of the        SH: It is important for Canadians of all income levels to
     actual numbers.                                               have money for their retirement. The current RRSP sys-
                                                                   tem allows Canadians of a higher income level to depend
     SH: It is important for hardworking Canadians to be able      more heavily on private savings, which means there will


66    JUNE 2004                                                                                        www.benefitscanada.com
    We should always be looking for
    ways to encourage Canadians to
  find ways to save for retirement to
         supplement the CPP.”
                                          —Stephen Harper
be less pressure on the public pension system. However,          We don’t want to consign people to abject poverty or
the high tax-back rates on other seniors’ benefits provide    have them have to cheat in order to survive. And that’s
disincentives for low and middle income Canadians to          really what we’re creating now.
save. This needs to be addressed.                                (Note: Stephen Harper was not asked this question.)

Q: Are you confident the measures taken in the creation of    Q: What is your take on the Air Canada situation? Should
the Canada Pension Plan Investment Board are adequate for     workers have to choose between a defined benefit or a
a well-funded retirement?                                     defined contribution plan?
SH: We should always be looking for ways to encourage         SH: The current situation at Air Canada must be
Canadians to find ways to save for retirement to supple-      extremely difficult both for the employees, as well as the
ment the CPP, and to do so in ways that don’t result in       company. As in any voluntary contractual agreement, one
higher tax rates in retirement.                               has to make choices; therefore, workers and their employ-
                                                              ers, not governments, should make the choice between a
JL: The Canada Pension Plan and the income supplement         defined benefit and defined contribution plan.
is now a prescription for poverty, particularly for women.
It’s nice that it’s fully funded but it doesn’t provide an    JL: The idea that, for example, at Air Canada, somebody
adequate revenue for people vis-à-vis housing and food        coming in with $600 million as an investor could jeopar-
costs. And it’s just quite tragic to see what’s going on.     dize a $10-billion pension plan, is really quite worrisome.
    We’re also concerned that a piece of the Canada Pension
Plan was shifted over to the private sector to be managed     Q: What type—if any—protection should there be for
by the private sector. It was done two or three years ago,    employees’ pensions? Should protection be legislated?
the major piece. And, of course, then the stock market        JL: We’ve proposed legislation that would actually move
crashed and we lost a huge amount of the value in the CPP.    the pensioners up on the priority ranking in the case of
Now, on the other hand, when the stock market does very,      bankruptcy so that their deferred wages—their pension—
very well, it’s easy to say, ‘Well, maybe we should have      would be protected before other creditors.
some of the Canada Pension Plan in the stock market.’ I          What this would affect would be the bankruptcy
question that. Because I think that steady, predictable       itself, if indeed a firm became bankrupt. It would put
growth rates in the pension fund, rather than the gambling    the pensions into the most protected position, as
game that is the stock market, is a more wise approach.       opposed to the least protected. And in a sense, it’s gov-
                                                              ernment saying: ‘We’re going to take steps to protect
Q: Do you support mandatory retirement? At what age           what it was that was essentially the workers’ property,’
should Canadians have to retire?                              which right now hasn’t happened.
JL: Well it’s already in place. And we’ve been supporters
of a retirement age historically, subject to there being an   SH: Currently, there is sufficient protection for pension
adequate pension. And we haven’t announced any change         plans. In the case of Air Canada, the airline would not be
in that position, yet. We think there should be adequate      facing as much trouble if the federal government had
pensions. So that people can retire in dignity. That’s the    reduced airport rents and eliminated the air tax.
approach that we have taken.
   The mandatory retirement age is there, in part, to         Q: Does Canada have a pension/health crisis on its hands
make sure that there is also new job opportunities opened     with the wave of baby boomers coming into retirement?
up for young people. And that’s a part of that package.       SH: It depends on how the government manages its fiscal



www.benefitscanada.com                                                                                           JUNE 2004   67
policy in the future. The manner with which the Liberals       We’re just seeing the beginning of it hit now. That’s why
have managed the country’s fiscal policy is simply not sus-    that kind of review should be done so that we can estab-
tainable over the long term. They have ramped up spend-        lish what is it that a person needs to live on at a decent
ing at rates not seen since the Trudeau years and, over the    level and how can we make sure that at that level, support
past couple of years, have increased the bureaucracy.          is given. [ I advocate] ramping up, step by step, on the
                                                               basis of what we can afford, the payments to seniors.
JL: The crisis won’t be that the pension is underfunded or
unfunded—it will be that the seniors are living in abject      Q: In terms of the budget, was the government’s allotment for
poverty. And we’re seeing that poverty growing. This is        healthcare sufficient?
another area that needs reform.                                JL: All we saw on healthcare was the re-announcement of
                                                               the money that Jean Chretien had agreed to give. Paul Mar-
Q: What should the federal government do today to combat       tin didn’t need to add any new dollars at all. They tried to
this potential crisis?                                         package up the accord with the premiers from last year as a
SH: The best way to ensure Canadians have the health-          very large dollar figure but actually that was just making a
care they deserve and to avert a pension crisis is through     modest step back towards the level of funding that used to
targeted spending in high priority areas. Spending growth      be present before Paul Martin became the Finance Minister.
must be reined in and wasteful spending eliminated. It is         It’s a very small step in the recovery and this at the
also important for the government to foster a strong eco-      same time as we’re sitting on very large surpluses in the
nomic climate through tax relief.                              federal budget. And we’ve seen Mr. Martin’s approach,
                                                               which is to take those surpluses and put them against
JL: I think [we need an] actual assessment of the needs of     national debt. This is like having your grandmother starv-
seniors, the income that they need, so that they’re not hav-   ing and deciding you’re going to pay your mortgage down
ing to live on the edge or so far below the poverty line. We   faster than the bank says you have to, rather than help her
need an assessment of that before the boom hits full force.    out with some food.
                                                                  We propose the federal government pick up 25% of
                                                               the eligible health costs and we think that that needs to
                                                               be done in these budgets. That level should be achieved
                                                               in a matter of a very few number of years.
                                                                  We need a national homecare program so the seniors
                                                               can stay in their homes longer. It’s dramatically less
                                                               expensive than if they ultimately are unable to look after
                                                               themselves properly and end up in the hospital or in a
                                                               long-term care facility.

                                                               SH: I am willing to consider additional funding for health-
                                                               care. I think the recently signed Health Accord, which I
                                                               supported, provides a good example of a framework under
                                                               which additional spending could be considered.

                                                               Q: In terms of your own retirement plans, what do you have
                                                               in mind?
                                                               JL: Well, I’m in the sort of career that can put you into
                                                               retirement by a decision of the voters. My hope would be
                                                               that, at that point, I would be very active but on a volun-
                                                               teer basis. That would be the ideal. Maybe a little golf.

                                                               SH: Like most Canadians, I hope retirement will allow
                                                               me to spend time with my children and, when the time
                                                               comes, my grandchildren.                          BC

                                                               Joel Kranc is associate editor of BENEFITS CANADA.
                                                               joel.kranc@bencan-cir.rogers.com
                                                               Anna Sharratt is associate editor of BENEFITS CANADA.
                                                               anna.sharratt@bencan-cir.rogers.com

				
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