...a retirement with dignity and security is possible

Transcription

1 Pensions

2 Pensions...a retirement with dignity and security is possible Context and challenges the CaW is proud of the pensions that we bargain in the workplace on behalf of our members. We have always recognized, however, the limits of workplace pensions and advocated for a strong public pension system that will support all Canadian workers. We value Canada s three-pillar retirement income system. this is a sensible system in that seniors do not rely on a single income source for their financial well-being. the three pillars are: 1) Public pensions old age Security (oas) with an income-tested guaranteed income Supplement (gis) and the Canada and Quebec Pension Plan (C/QPP); 2) employer pension plans; and 3) individual tax-sheltered savings plans (rrsps and tfsas) 8. there is wisdom in the adage do not put all your eggs in one basket. to see how the system works, we can use the recommended target that Canadians should retire with 70 per cent of their pre-retirement income. at age 65 a Canadian worker earning $50,000 and entitled to the maximum public pensions, would receive almost $6,500 from the oas and $11,840 from the C/QPP, replacing 37 per cent of pre-retirement earnings. the remaining income must come from employer plans and/or individual savings plans. this is an example. many Canadians do not get the maximum amounts; and for Canadians earning over $50,000, the public pension amounts would replace a lower per centage of pre-retirement income. our public pension system has been extremely effective in reducing poverty among seniors. in the 1970s, 35 per cent of seniors were living in poverty. the C/QPP was introduced in 1966 and as Canadians started to benefit from it, senior poverty declined. in 1980, 18 per cent of seniors lived in poverty; however, 43 per cent of single elderly women lived in poverty which sparked changes in oas and gis. today, with the changes in oas/ gis and the maturation of C/QPP, senior poverty is down to 5 per cent. 9 Canadians can take pride how we have developed collective public pension programs to successfully meet the challenge of senior poverty. Unfortunately, the three-pillar system that has served us so well, is being eroded today. recent reports estimate that 30 to 50 per cent of Canadians approaching retirement will face a significant drop in their standard of living. 10 already there is a disturbing trend in senior poverty: two of three recent immigrants who are elderly are living below the poverty line. erosion of the three pillar retirement income system Upon examining our three-pillar system, we can see the erosion of retirement income and the need to be concerned for Canadians approaching retirement. in the first pillar, our public pensions, benefits are securely funded but the levels are modest and not sufficient for middle and moderate income earners. Furthermore, even these modest pensions are facing cuts. the early CPP payable at age 60 was 70 per cent of the full CPP payable at age 65. By 2016, the age 60 CPP will be reduced to 64 per cent of the full CPP. Quebec did not make the changes in their early QPP. an even more disturbing cut in public pensions came in the 2012 federal budget. minister of Finance, James Flaherty, announced that oas eligibility will be raised from the current age of 65 to 67. the change will start in 8 registered retirement Savings Plans; tax Free Savings accounts 9 Bob Baldwin, research Study on the Canadian retirement income System. november michael Wolfson, retired assistant Chief Statistician at Statistics Canada: Projecting the adequacy of Canadians retirement income: Current Prospects and Possible reform options, april Keith Horner, retired Finance department official, a new Pension Plan for Canadians: assessing the options, July ColleCtive Bargaining and PolitiCal action Program Pensions 49

3 april 2023 and be fully in place by January Canadians under age 54 today will be affected, and this includes many workers who have already taken early retirement with the understanding that they would collect oas at age 65. a large segment of Canadians are approaching retirement. there are currently 4.7 million seniors today and that number will double to 9.3 million in 2030 as more baby boomers retire. Canadians are told to plan for their retirement, yet our government is introducing changes to public pensions on short notice that will radically affect our plans. the changes are unnecessary, reckless, and ill-advised. in the second pillar (workplace pension plans), we see a serious decline in employer sponsorship, particularly in the private sector. and then there is the issue of the type of pension plan. the CaW has an excellent record on bargaining defined benefit (db) plans. With db plans, the members are promised a set pension benefit (e.g. $65 a month per year of service, or 1.7% of final average salary per year of service), and the employer is responsible for funding the pension. But today more and more employers are moving toward defined contribution (dc) plans, whereby the employer pays a fixed dollar amount to the worker s pension account and the worker is left to manage the investment of the funds for their retirement. the target benefit plan or multi-employer pension plan (mepp) is a combination of the db and dc benefit plans: the employee has the set benefit of the db plan and the employer has the set contribution level of the dc plan. However, if there is a shortfall in the pension fund and the employer refuses to increase contributions, then the employees benefits are cut. (in some plans there is an option for employees to increase contributions). employers are dropping the ball on workplace pensions Over 11 million Canadian workers do not have a workplace pension. They are totally dependent on individual savings and government pensions. In 2009, 40% of paid workers (public and private sector) had a pension plan with their employer. In the private sector, only 1 in 4 workers have an employer-sponsored pension plan. In 1977, almost 40% of private sector workers had a workplace pension plan compared to 25% today. For those private sector workers who have a pension plan with their employer, just over half of them have a defined benefit pension. The bottom line is that only 15% of private sector workers have a defined benefit pension plan. Today, 24% of defined benefit plans are closed to new hires and another 12% are frozen for current members and closed to new hires. Unions have been the key player in getting decent pensions for workers. About 80% of unionized workers have a pension plan compared to 27% of non-unionized workers. Source: Statistics Canada, 2009 When we look to the third pillar (individual savings plans), we find that for Canadians approaching retirement age, the average rrsp is $60,000 enough to buy a monthly pension of $250. after a lifetime of work, Canadians should have a secure and decent standard of living in retirement. But the future is becoming more uncertain as Canadians are unable to save for retirement, employers are failing to provide decent (or any) pensions, and our government is cutting our public pension system. The government s own at the bargaining table, employers are united and aggressive in research shows OAS to be their demands for pension concessions in particular, wanting to change the db plan to dc, if not for current employees, then for affordable in its current form. new hires. Unions have resisted these demands and even gone on strike at air Canada, St. mary s Cement, vale inco, and Canada Post to fend off demands to cut pensions. it was troubling to see the federal government support aggressive corporations and order workers at air Canada and Canada Post back to work. our federal Conservative government presents another challenge. Stephen Harper s government is no friend to working Canadians. the tory solution to the financial difficulties facing Canadians in retirement seems to be for workers to just work longer. Finance minister James Flaherty justifies delaying oas to 67 because Canadians are living longer. But raising the oas by 2 years will be particularly hard for low income older workers. Canadian workers in the bottom 20% of the workforce pass away 5.6 years earlier than those in the top 20 per cent. Half of all low income men collect an oas/gis cheque for only 10 years andrew Jackson, ClC economist. Post on the Progressive economics Forum, Hiking the retirement age is the Wrong answer to the retirement Crisis. January 27, ColleCtive Bargaining and PolitiCal action Program Pensions 50

4 Stephen Harper introduced the delay in oas, saying that it would become unaffordable. But the government s own research shows oas to be affordable in its current form. in fact, his statement was so wrong that the Parliamentary Budget officer, Kevin Page, took it upon himself to write a four-page letter to the senators and mps saying the oas is sustainable. it is encouraging that 74 per cent of Canadians opposed Harper s plan to increase the age of oas to 67. on the failure of employers to provide pension plans, Federal Finance minister, Jim Flaherty, introduced the Pooled registered Pension Plans (PrPPs). these plans are similar to rrsps; banks and insurance companies will offer voluntary plans to which employers and/or employees can contribute. the new legislation will enable financial institutions to pool the funds and, supposedly with the greater economies of scale, institutions will offer lower administration and investment fees than are currently offered under rrsps. there is no support for this promise of lower fees. nor is there any reason to think that PrPPs will enhance the retirement savings of Canadians. Canadians currently have $600 billion of unused rrsp contribution room. We are not contributing to tfsas. Why does our government think that Canadians need this third tax sheltered savings plan if we are not using the ones that we have? if employers are not contributing to an rrsp now for their employees, why does our government think they will contribute to a PrPP? the Conservative government seems more interested in helping the banks and insurance companies profit off our retirement savings than in helping Canadians achieve a secure retirement income. and public opinion is another challenge that we face. the Canadian Federation of independent Business has mobilized public opinion against workers who do have decent pension plans, in particular public sector workers (who typically contribute a large share of their own pay directly to the pension plans). now governments are looking to contain the costs of public sector pension plans which is a likely step toward implementing cuts. Public sector workers do have good pension plans, but they have made sacrifices in previous negotiations to support their pension plans and they contribute upwards of 9 per cent of pay to their pensions. attacks on public sector pension plans will only open the door to further attacks on the private sector plans. Political action priorities Preserving and improving our public pension system should be a priority as these plans benefit all Canadian workers. We can support the ClC campaign to build our public pension system: keep oas at age 65, improve the gis, and expand the CPP. The CLC proposal to double CPP benefits would require workers to increase their contributions from 4.95% to about 8% in 7 will contribute to a PRPP? years (with matching employer contributions). Within the 7 years, Canadians would start to earn twice the benefit level on a go forward basis. the CPP benefits would gradually accrue over 40 years to ensure that the improvement is done on an advance funding basis. We can join with the labour movement and our community allies to lobby governments at the municipal, provincial and federal level to improve our public pensions. the recent delay in oas will put more pressure on municipalities and provincial governments to deal with social assistance among the elderly approaching age 65. We must get the message out to Canadians that public pensions are cost effective programs that have been highly successful in reducing poverty among seniors. Bargaining priorities If employers are not contributing to an RRSP now for their employees, why does our government think that they We must continue to support our own local unions and other unions in their defence of workplace pensions. our fight-backs to preserve pensions in one workplace send an important message to all employers: their demands for pension concessions will generate a fight back. When CaW members at air Canada went on strike to keep their defined benefit pension plan, several other employers negotiating with CaW locals at the time, withdrew their demands for dc plans. Retirees make up 35 per cent of DB plan members. A securely funded pension is important to actives and critical to retirees. the union can call on the employer for adequate pension funding. ColleCtive Bargaining and PolitiCal action Program Pensions 51

5 Where we cannot bargain DB plans particularly in small workplaces, we can still hold the employer responsible for their employees retirement. Workers in small workplaces with stable employment can benefit from target benefit plans such as nursing Homes and related industries Pension Plan (nhripp) or the Canada Wide industrial Pension Plan (CWiPP). target benefit plans can be multi-employer and multiunion with joint union-employer responsibility. Where we have little option but to accept a dc plan, we can call on the employer to pay a price for shifting the investment risks onto the employee. employer contributions to a dc plan should include an additional levy to cover the administration costs and investment risks that the employee must take on. And we can take our campaign for improving the public pensions to the workplace. We can table proposals calling for the employer to make up for the cuts in government pensions: early retirement supplementary pensions (and disability benefits) payable to age 65 should be extended to the date oas becomes payable; supplementary pensions should be enhanced to cover the new reductions in early CPP. Not in bargaining for a year or so? Send the employer a letter stating your concerns on how the cuts in public pensions will affect your members and advising that the union will be tabling proposals for the employer to make up for the government cuts. invite the employer to join the local union now, and write to the minister of Finance requesting that the government maintain the age 65 eligibility. What our collective agreements say about PenSionS 92% of our members have a pension or workplace retirement savings plan. 53% have a defined-benefit plan, of which 47% have a traditional defined-benefit pension plan. Among these plans, the average benefit is $49.52 per month, per year of service. 4% are members of the Hospitals of Ontario Pension Plan. 2% are members of the Nursing Home Retirement Plan 3% are members of the Canada-Wide Industrial Pension Plan (CWIPP), a multi-employer hybrid plan. 24% have a group or matched Registered Retirement Savings plan (RSP). 12% have a money-purchase or other definedcontribution plan. 45% have access to an unreduced early pension. 32% have a supplemental early retirement pension. 19% have a 30-and-out pension. 26% have inflation indexing. Source: CAW State of the Union the pitfalls of rrsps and dc plans High fees Over their working life, workers lose up to 30 per cent of their retirement savings to administration and investment fees. When they retire, they can purchase an annuity (guaranteed monthly payments), but insurance companies charge high fees on annuities another loss to the worker. Poor investment strategies Workers are not necessarily good investors. One study showed that 50% of DC plan members invested all or none of their funds in stock market equity investments. On average, the rates of return for workers DC plans average 1% less than DB plans. 12 Market risk Workers do not have the financial resources to withstand the ups and downs of the market. A market crash can wipe out the best plans for retirement. 12 national institute on retirement Security, A better bang for the buck. august ColleCtive Bargaining and PolitiCal action Program Pensions 52

6 Sample joint local union and company letter calling for maintaining oas at age 65 The Honourable James M. Flaherty Minister of Finance House of Commons Parliament Buildings Ottawa, Ontario K1A 0A6 Dear Minister Flaherty: In the 2012 federal budget, the government announced that Old Age Security (OAS) eligibility will be raised from the current age of 65 to 67. The change will start in April 2023 and be fully in place by January Canadians under age 54 today will be affected. We believe that the government proposal to delay the age of OAS is a step in the wrong direction for Canada s public pension system. Several experts on retirement income report that between 30% and 50% of Canadians aged 45 to 65 are facing a significant drop in their standard of living upon retirement. 13 The government should be improving OAS rather than cutting it. Many employer pension and disability plans are set around the current OAS benefits. The plans have benefits payable to age 65, the date OAS starts. With OAS delayed to age 67, these employer-sponsored benefits will have to be extended at a cost. Some workers have already taken early retirement on the understanding that they would be eligible for OAS at age 65. The government suggests that Canadians can and should work beyond age 65. But there are many low wage older workers who need the OAS to subsidize their earnings. And Canadians working in physically demanding jobs, as well as those with poor health, need the option to retire at age 65 or earlier. The delay in OAS to age 67 will keep older workers in the workforce and worsen the high rates of youth unemployment, currently at the high level of 14%. Prime Minister Stephen Harper claimed in his January 2012 announcement to delay the age for OAS, that the current OAS is too costly. The government noted that the number of seniors will double from 4.7 million in 2010 to 9.3 million in michael Wolfson, retired assistant Chief Statistician at Statistics Canada: Projecting the Adequacy of Canadians Retirement Income: Current Prospects and Possible Reform Options, april Keith Horner, retired Finance department official, A New Pension Plan for Canadians: Assessing the Options, July ColleCtive Bargaining and PolitiCal action Program Pensions 53

7 However, Mr. Harper s statement has been seriously challenged. Immediately following the announcement, the Parliamentary Budget Officer, Kevin Page, issued a four-page letter to all Members of Parliament and Senators stating that the OAS is sustainable in its current form. He noted that federal elderly benefits would increase from $36 billion in to $142 billion in That sounds sizeable, but Page notes that as a per centage of GDP, the cost of seniors benefits will go from 2.2 per cent to 3.2 per cent of GDP. The 1 per cent increase is not cause for concern. 14 In 2010, Canada s Finance Ministers commissioned OECD economist, Edward Whitehorse, to compare Canada s seniors programs with other nations. Whitehorse reported that Canada spends 4.5% of national income on pensioners significantly below the OECD average at 7.5% for 30 countries. On the sustainability of the OAS, he concludes: The analyses suggest that Canada does not face major challenges of financial sustainability with its public pension schemes. 15 Employers and workers recognize the OAS as a cost-effective public pension that provides income security to millions of Canadians in their retirement. We respectfully propose that your government maintain age 65 as the date of eligibility for OAS. We look forward to your response. Yours truly, Name, Position, Company Name, Position, Union cc: Peggy Nash (NDP), House of Commons, Ottawa, Ontario K1A 0A6 The Hon. Scott Brison (Liberal), House of Commons, Ottawa, Ontario, K1A 0A6 Daniel Paillé, Président et Chef du parti, Bloc Québécois, 3730, boul. Crémazie Est, 4e étage Montreal (Quebec), H2A 1B 2 14 office of the Parliamentary Budget officer. Federal Fiscal Sustainability and elderly Benefits. February 8, ottawa, Canada e. Whitehouse. Canada s Retirement-income provision: An international perspective. department of Finance Canada, January 7, ColleCtive Bargaining and PolitiCal action Program Pensions 54