TORONTO, Dec. 16 /CNW/ -
December 11th, 2009
Federal Finance Minister and all provincial
and territorial Finance Ministers
Re: Whitehorse meeting on retirement income adequacy
In light of the upcoming federal/provincial/territorial finance ministers' meeting in Whitehorse on December 17th-18th to discuss the work of the Research Working Group on Retirement Income Adequacy, I am writing on behalf of the 105,000 small- and medium-size independent business owner members of the Canadian Federation of Independent Business (CFIB) to provide their views on this very important topic.
CFIB looks forward to having an opportunity to review the report of the Research Working Group on Retirement Income Adequacy (the Menzies Committee), as well as the supporting research being directed by Jack Mintz. While we are pleased Mr. Menzies met with us on October 26th, we remain concerned that much of the work of the Menzies Committee and the related research studies has been conducted behind "closed doors" without any significant attempt to solicit input from, and to share information with, the SME community.
A main challenge for the Whitehorse meeting is to change the review process on pension policy to be open and accountable about its work. Lack of transparency and accountability helped create the problems we now face; continuing this approach will only hinder, not help, the development of pension policies that are fair and practical. CFIB has long been an advocate for improvement to pension policy. In the 1980s we conducted our first study of the various pieces that made up small firms' pension arrangements. Our work over several years in advocating mechanisms for SMEs and their employees eventually resulted in measures, such as enlarging RRSP contribution limits and eventually gaining carry-forward of unused contribution room. In recognition that some business owners hope to get a retirement out of selling their businesses, CFIB also worked very hard on enlarging the lifetime capital gains exemption as well.
CFIB will continue to be a strong advocate for improvements to pension policy. It is critical that any meaningful discussion on pension policy address the views of one of the most important contributors to the Canadian economy in this debate-Canada's SME owners. As major creators of jobs and economic growth, SMEs are simply too important not to be considered.
As you know, Canada's population is rapidly aging and Canada's entrepreneurs are an important component of the aging population. Self-employed individuals over the age of 55 currently account for one-in-four self-employed individuals in Canada and they constitute more than 30 per cent of the total workforce over the age of 55(1). CFIB research has found that over the next 5 years one third of independent business owners plan to exit ownership or transfer control of their business, while over the next ten years this statistic increases to two-thirds of independent business owners(2). Self-employed individuals retire the latest at an average age of 65 years old. Individuals working in the private sector retire a little earlier at an average age of 62 years of old, while individuals in the public sector retire the youngest at an average age of 59 years old.
We recently expressed our views to several provincial pension review committees. Unfortunately, the narrow mandate of these pension reviews did not allow for some fundamental issues to be addressed. We are therefore calling on all federal/provincial/territorial finance ministers to address two important issues of concern to SMEs: the growing gap between private- and public-sector pensions and the issue of governments' backstopping private-sector pension plans in financial difficulty.
As outlined in a CFIB report(3), there is a widening pension inequity between the public sector and the private sector in that the public sector is clearly driving the early retirement trend. We are well on our way to a two-tier retirement system, if in fact it has not already arrived. This phenomenon is due to the fact that individuals working in the public sector benefit from very generous and costly defined benefit (DB) registered pension plans. These DB plans are subsidized by the government, therefore taxpayers. What's most alarming is that although taxpayers are funding public sector pension plans, the majority of the population working in the private sector, 73 per cent, do not have any form of registered pension plan.
What's even worse is that approximately 50 per cent of Canadian taxfilers have no private savings vehicle for retirement at all. This means they will rely solely on the public pension system, such as Canada/Quebec Pension Plan (C/QPP) and Old Age Security (OAS) to ensure some form of income upon retirement. This does not even come close to ensuring hard working Canadians maintain the same standard of living as when they were working. Yet these same Canadians are saddled with the funding of lavish public sector defined-benefit pension plans and are also being asked to bailout unfunded private sector pension plans.
It is unconscionable that Canadian taxpayers are on the hook for public sector pension plans when half of the Canadians working in the private sector will not even benefit from any form of retirement savings. Undeniably, both sectors play a crucial role in Canada's economic well being. However, the differential treatment, through laws, regulations or compensation philosophies, which exist between public and private sector pension plans, is unjustifiable and unfair to Canadians.
Furthermore, while sympathetic to those relying on private sector pension plans that run into trouble, CFIB members overwhelmingly reject the notion that governments should backstop them(4). Think about the seniors who never had the luxury of having a company pension, or the employees whose RRSPs lost considerable value after years of diligent contributing. Will they be bailed out? Guaranteeing pension plans exposes them to future financial risks and creates a disincentive for the plans to be cost-effectively managed. It also sets a dangerous precedent by giving other troubled pension plans reason to ask for this type of lifeline. Bailing out certain pension plans "on the fly" will certainly have a long term detrimental effect on public finances.
The inequality issue many Canadians are faced with regarding pensions is a serious disservice to the private sector because it is imposing needless barriers for the private sector to compete on a level playing field with the public sector. This is particularly harmful for small- and medium-size firms, which are the backbone of the Canadian economy.
CFIB believes the unfairness has gone on long enough and is calling for increased efficiency, transparency and accessibility to the pension system. Information on pension plans and pension benefits is scarce, not easily accessible, and, at times, unnecessarily complicated, which does not allow the general public (including independent business owners) to actively engage in the pension debate. In addition, the lack of research data also hinders our attempts to estimate the extent of the real deficiencies and unfunded liabilities of both public sector and private sector pension systems and to offer more practical solutions.
The spotlight on this issue will increase even more as the gap between the two classes of retirees widens. It is clear that the existing retirement system needs to be remedied and a complete in-depth discussion on this issue during your upcoming finance ministers meeting is long overdue. With that said, CFIB recommends that changes be guided by the following principles which ensure retirement fairness for all Canadians:
- All levels of government should adopt an overarching principle of
fairness for all Canadians in their ability to save for retirement.
- The taxpayer should not be the default go-to-mechanism to fund pension
plan shortfalls, either in the private sector or in the public sector.
Until governments are ready to fix their own pension situation, no
taxpayer's money should go to funding/covering deficits/bailing out
pension plans. Governments need to look into realistic solutions to
the unsustainable funding deficiencies of defined-benefit plans in
both the public and private sector.
- Federal and provincial governments should undertake pension policy
reform with the specific mandate of finding ways to re-establish a
level playing field between the public and private sector. For
example, if the public sector offers richer benefits compared to the
private sector, it may be necessary to give private sector employees
and employers more options for retirement savings and more capacity to
put their own money aside. That being said, the size of the "pension
pie" is not unlimited, and the more money public sector plans soak up,
the less there will be available for individuals to save for their own
retirement, no matter what measures are put into place to assist them.
There already exist a number of tax-assisted means of Canadians to
save for their own retirement, but high tax levels leave precious
little disposable income for the average Canadian to put aside once
other expenses are taken into account.
- Develop a set of policy options that address the issue of pension
coverage among Canadians, particularly for SME owners and others in
the private sector that do not have any form of registered pension
plan. There has been much discussion about whether the solution should
stem from the public sector or the private sector. For example, the
notion of a supplemental plan that could be administered by the Canada
Pension Plan or a multi-employer plan offering by financial
institutions both merit careful consideration. This approach would be
one step to help alleviate some of the pension inequity that exists.
- The disturbing lack of clarity, accountability and transparency in the
pension system needs to be corrected. Federal and provincial
governments should harmonize solvency funding rules for private and
public sector pension plans across the country, so that every plan is
held to the same standard.
- Governments must begin to make data publicly available so that the
proper research can be done and relevant solutions proposed. The lack
of available data has created many research limitations. For example,
the lack of data on benefits paid-out to pensioners, indexation
factors and age of entitlement limits the extent to which we can
calculate the taxpayer dollars that are allocated to public sector
The issue of retirement security for current and future generations of Canadians is a vital social and economic matter. Demographic realities indicate that inadequacies and inequities in our current pension environment will come to a head very shortly and therefore need urgent attention. We at CFIB are hopeful that your upcoming meeting can begin to deal with the many challenging issues at hand, and establish a direction for future collaboration among governments on pension policy and practices that will be fair to all Canadians.
(1) Statistics Canada, 2006 Census data.
(2) CFIB, Succession: Update Report, October 2006.
(3( CFIB, Canada's Pension Predicament, January 2007
(4) Please see attached CFIB Mandate 235 Survey Result.
President & CEO
Cc: Ted Menzies, Parliamentary Secretary to Finance
Attachment: CFIB Report-Canada's Pension Predicament
CFIB Mandate 235 Survey Result
SOURCE Canadian Federation of Independent Business
For further information: For further information: To arrange an interview, please contact either Adam Miller or Meghan Carrington at (416) 222-8022