Securing our Retirement Future
OPSEU represents over 125,000 workers in Ontario"s direct and broader public service. Our members work in the Ontario Public Service; in Ontario’s community colleges, universities and boards of education; in Ontario’s liquor stores; in Ontario hospitals, ambulance services, home care and community care agencies, community health centres and public health units, community addiction services, long term care facilities, community mental health agencies, and laboratories and blood services; children’s aid societies, developmental services, child treatment centres, child and family services, childcare centres and other community agencies.
We are pleased to have this opportunity to respond to the Ministry of Finance document on retirement security and, in particular, consideration of the Canada Pension Plan (CPP) and pension innovation to extend effective pension coverage to all Canadians. We understand that the proposal is that there be a “modest” increase; the question is how could this best work within the existing structure of the CPP?
We are particularly pleased that the discussion of pension innovation is brought to the national stage. Given the integration of federal and provincial laws, it is critical that there be coordination between the federal government, other provincial governments and territories on how best to regulate pensions to guarantee affordable, secure and low-cost retirement benefits for all Canadians.
Defined pension benefits delivered by the large jointly sponsored pension plans in Canada are among the lowest-cost, most affordable and secure benefits for Canadians. The institutions that deliver these benefits are world leaders in Canada’s financial industry and have established best practices in plan member services, board governance and investment management.
Individual savings through the Registered Retirement Savings Program tand, often, in the mutual fund industry incur some of the highest management fees in the world and are among the least transparent ways to invest. As the discussion paper points out, Group RRSPs and defined contribution plans are essentially the same as individual savings programs in the costs incurred and in the expenses to convert the savings to annuities upon retirement. None produce a lifetime benefit and the net returns on savings are pitifully abysmal given the high costs.
OPSEU’s policy is that we must do all we can to bring our members into larger defined benefit plans; however, we must do all we can to protect our members’ interests who have defined contribution plans and that includes bargaining lower costs of fund management. This is very difficult which is why we appreciate the discussions being raised by the government on this issue.
A public policy concern is that – given the high costs, volatile markets and mediocre fund management – it is entirely possible that DC plans may not be able to provide secure benefits in retirement. We are therefore concerned about the public policy implications of a large group of Canadians who might technically be counted as ‘covered’ by a pension but, to all intents and purposes, will not receive a reliably secure retirement benefit.
We look forward to the development of a target benefit option. We hope this will undermine the view that there are only two options – DB or DC – and provide an option for workers who are self-employed, part-time or contract, or who work in smaller workplaces where, realistically, the employers are not able to deliver a sustainable pension. We also hope it will provide an alternative to conversion from defined benefit to defined contribution plans.
We agree with the Ministry that employment may no longer be a viable platform for pension delivery and that the Income Tax Act needs to reflect this labour market reality.
The Canada Pension Plan
Since its inception, the CPP has achieved its purpose of lowering elder poverty; however, it is clear that, in the future, CPP benefits will be too low, given the shrinking coverage by workplace pension plans, the changes in labour markets and the lack of savings by Canadians. As the discussion paper concedes, the CPP is a benefit designed to supplement other benefits, unlike many state pension systems in other jurisdictions.
However, it is a significant benefit given its full portability, security and indexation. It carries none of the risks inherent in many workplace plans, is a defined benefit and has low administrative costs compared to many workplace plans. As the discussion paper concludes, because of these attractive features it really should be expanded.
OPSEU is in favour of doubling the replacement rate of future benefits, as is proposed by the Canadian Labour Congress. Given the phasing in of implementation over forty years, the impact on contribution rates will be measured and should not cause undue hardship.
Similarly, the impact on the CCP Investment Board, while challenging, will be spread over a number of years. OPSEU does not believe that there are undue risks associated with the concentration of assets in one investment management organization and has confidence in the abilities of the CPPIB to manage a larger asset base. Indeed, spreading the assets through other provincially based financial pension institutions creates new administrative risks that are largely unknown and seem unnecessary.
Indeed, OPSEU believes that as a matter of public policy we must strengthen our public programs and institutions. We recognize that there may be a transfer of assets from the private pension world to the CPP through a re-arrangement of contribution rates. That is all to the good, since the CPP provides a universal defined benefit to all Canadians that is secure, indexed and fully portable.
Like the broader population, OPSEU’s membership suffers from the division between those with large, stable DB plans and those with less secure or no pension coverage.
We note that coverage for casualized work forces is almost non-existent. Employers continue to deny their part-time, temporary and sessional workers access to a pension plan. And yet, the numbers of these workers are growing. This is particularly the case in the developmental services sector where ‘part-time’ may mean one hour less than regular full-time workers. There is virtually no difference except that one has benefits; and – in some cases – the numbers of part-time and casual workers vastly outnumber full-time workers.
These employers are not going to pay for a pension for their part-timers unless it is mandatory to do so. Nor, we are told, will the government pay in increased transfer payments to public sector agencies.
This is the problem across all sectors of the labour market.
OPSEU’s position is that employers should have to provide pensions to part-time workers when part-time workers elect to have a pension as in Manitoba’s pension law. This solves the problem for those part-time and contract workers in a workplace where there is already a pension plan like, for example, universities and hospitals.
But we also need a vehicle where workers can ‘park’ their stranded pensions, or where employers can remit pension contributions, or where people can save. This would need to be one of the ‘opt-out’ options for part-time workers who work in two or three workplaces.
This could be an Ontario Pension Agency (OPA) which – as a non-profit agency – could, in net costs, save taxpayers the cost of high management fees associated with the private sector insurance business and make pension coverage more effective and affordable. This could, in effect, be a large multi-employer pension plan offering target benefits to all those with scattered or no pension coverage. It could be structured to provide ‘opt-out’ plan membership to all those who are not plan members otherwise.
Another vehicle for increasing coverage is to use the administrative and investment services of the large plans. They already have the resources and capacity to provide this support. We should expect these services from them at a reasonable rate, substantially lower than the for-profit sector, and provided in the public interest as long as they are operating under capacity.
Besides the fact that it is non-profit, the best safeguard to oblige any institution to operate in the interests of plan members is to have an independent board with representation of plan members and retirees.