PENSIONS & BENEFITS
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.”
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.”
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
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.
Anna Sharratt is associate editor of BENEFITS CANADA.