More than 11 million Canadian workers, 68% of the workforce, have no workplace pension. Eight million have neither a private pension plan nor registered retirement savings plans. Alberta's situation is the worst in Canada, with Albertans on track to only be able to replace 45% of their income in retirement, versus 50% nationally. The generally recommended percentage to avoid a large drop in living standards after retirement is 70%. But it gets worse.
Those workers who do have pension plans or RRSPs have seen the value of those slashed as a result of the global economic meltdown. Workers in many industrial sectors have seen their pensions wiped out or drastically reduced as companies go out of business or because the plans are severely underfunded.
Canadian pension analyst James Pierlot estimates that, by 2030, "two-thirds of Canadian retirees will not have enough retirement income (and) are looking at relative poverty."
But this problem existed before the current economic crisis struck. According to the Conference Board of Canada, poverty rates among seniors doubled between 1995 and 2005.
Clearly, it's time to reform Canada's pension system The average monthly Canada Pension Plan (CPP) benefit paid to Alberta retirees today is $511.30, just a little over $6,100 per year. Most federal and provincial politicians across Canada agree that the CPP needs expanding, but the government of Alberta is blocking the way. Rather than modestly increasing the CPP benefit to keep more seniors out of poverty, Alberta is pushing for a supplemental plan that will not solve the problem. We need a real solution, a significant expansion of the CPP, rather than the Band-Aid solution being pushed of a voluntary "supplement" to the CPP. Alberta needs to get out of the way of national pension reform.
While the Alberta Federation of Labour welcomes any decision to reform our pension system, Alberta's proposal for a government-sponsored supplemental pension plan may actually make a bad situation worse.
An analysis of the supplemental plan - commissioned by the AFL and prepared by PBI Actuarial, a Vancouver actuarial firm specializing in pension management - shows that it would generate as little as 14 per cent of pre-retirement income for individuals enrolled in the plan, far short of the recommended threshold of 70%.
In fact, the Alberta supplemental plan seems designed more as a subsidy to the private mutual funds and insurance industries than as a fix to our retirement crisis. Alberta proposes that the supplemental pension plan be managed for profit by private industry. Unfortunately, Canada has the highest investment management fees in the world, with an average of 2.5% in the mutual funds industry.
A supplemental plan also gets low marks because it allows employers to opt out and it wouldn't require all employers to match contributions made by individual employees. Perhaps the biggest drawback, PBI argues, is that the supplemental plan would be a defined-contribution plan as opposed to a defined-benefit plan - meaning that people covered by the plan would run the risk of having their retirement nest egg substantially reduced if they have the misfortune of retiring during an economic downturn (like the one through which we are currently struggling). It shifts all the risks onto the shoulders of individual Canadians with no government guarantees. A supplemental plan is not the solution to our pension woes. But what is?
The AFL and other labour federations are calling for a modest expansion of the existing CPP. A growing chorus from labour, business and academia, and from politicians of all stripes from across Canada, now see the CPP - which provides a defined benefit - as the best and easiest vehicle for reform. According to a September 2010 poll commissioned by CUPE, 66% of Albertans support expanding the CPP.
Expanding the CPP is clearly the best option for reform. It already covers 93% of working Canadians. It's a defined-benefit plan, so people have a clear understanding of what income they can expect in retirement. Its size makes it highly tolerant of risk. Its administration fees are low. It's a portable plan, following the worker no matter if they change jobs or move to a different province. Participation in an expanded CPP should be mandatory, otherwise employers will continue to simply opt out or cut back contributions.
The AFL also believes that improvements must be made to private-sector pensions. Legislation should be introduced to protect these pensions if the pension plans go bankrupt.
What can you do?
The Alberta Federation of Labour is campaigning, in close cooperation with the Canadian Labour Congress (CLC):
- to double CPP benefits over seven years
- to increase OAS/GIS benefits for seniors by 15%; and
- for a federal pension insurance system.
Click here for details: http://www.canadianlabour.ca/issues/pensions-retirement
Visit the CLC retirement Facebook page: http://www.facebook.com/home.php?#!/pages/Retirement-Security-For-Everyone/260209311318?ref=ts
To get involved:
To find out more about this issue, or to get involved, please contact Colin Piquette, our pension reform campaigner. Colin can be reached at:
Alberta Federation of Labour
10654 - 101 Street, Edmonton, AB T5H 2S1
Phone: 780-483-3021; Cell: 780-218-4351; Fax: 780.484.5928