|
|
|
|
|
|
|||||
      
|
Ottawa, December 17, 1997
1997-120
Notes for Remarks by the Hon. Paul Martin, Minister of Finance, before the Senate Standing Committee on Banking, Trade and Commerce regarding Bill C-2 (Canada Pension Plan)
Ottawa, Ontario
December 17, 1997
Delivered text is official version
Mr. Chairman, Senators: First of all, let me thank you for this opportunity to speak to you about Bill C-2. This legislation will ensure that the Canada Pension Plan continues to provide a solid foundation for secure retirement for working Canadians and their families as we enter a new millennium.
It is based on an agreement worked out among the federal government, eight provinces and the Northwest Territories. That agreement was itself based on the most extensive process of joint public consultation – conducted by the two orders of government – in memory.
This non-partisan approach to preserving the CPP is only fitting.
Because, as the consultations made clear, the Canada Pension Plan is woven deeply into the fabric of our country. It embodies core values cherished by the vast majority of Canadians.
It is fact, not rhetoric, that the establishment of the Canada Pension Plan in 1966 was one of the most important public policy initiatives ever undertaken in this country.
It reflected a national belief that retirement for working Canadians should not be a time of hardship. That a measure of our success as a nation must be the security of its seniors.
Mr. Chairman, the CPP captures the Canadian value of shared responsibility to protect those at risk. It does so by providing real and reliable assistance to some of the most vulnerable in our society: the disabled, the widowed, the orphaned.
These values are as strong and sure today as they were in the heady era of the ‘60s.
That is why Bill C-2 is before you.
The inescapable fact is, the Canada Pension Plan, which has done so much for so many, is under growing pressure – pressure that requires action now before it is too late.
The joint federal-provincial agreement reached last February paves the way for that action.
The federal government and eight provinces were determined not to shirk our responsibility to act now while the problems facing the CPP are still manageable.
The measure of good government is more than the ability to manage for today. It must include the capacity and foresight to act for tomorrow.
We live in a time of accelerating – and historic – demographic change.
Today, there are around 3.7 million Canadian seniors.
But the baby boom will produce an explosion in the number of seniors starting around 2011.
By 2030, there will be some 8.8 million Canadian seniors.
And because the post-war baby-boom was followed by the baby-bust, these seniors will represent a much larger share of the country's population than ever before in our history.
In 1966, when the CPP was put in place, there were about eight working-age Canadians for every senior.
Today in 1997, there are about five working-age people for every senior.
And in 2030, there will be only three working-age Canadians for each senior.
Mr. Chairman, this demographic dilemma is being further compounded by another dramatic change.
Thanks to medical advances and higher living standards, life expectancy has expanded and will continue to expand. Canadians today can expect to live three years longer than in 1966. By 2030, they will be living an average of 4.5 years longer.
This has a significant impact on the CPP.
It means that when baby-boomers retire, they will be collecting benefits for an average of 20 years, compared to 15 years when the CPP was established.
As a result of these new realities, the CPP is no longer sustainable as it is now structured. It cannot meet the challenges that lie ahead.
Action needs to be taken now or we will be placing a punishing burden – an unjust burden – on millions of working Canadians tomorrow.
A burden that, justifiably, they could be both unwilling and unable to bear.
The Chief Actuary of the CPP has spelled out this challenge in blunt, bottom-line terms.
He estimates that, if we do nothing, CPP contribution rates will have to increase from today's level of under 6 per cent, to over 14 per cent to cover escalating costs. This would be an increase of over 140 per cent for future generations.
Mr. Chairman, we have no business – no right – to impose such a legacy on our children and grandchildren.
The answer lies in this legislation.
C-2 renews a shared commitment to ensure that the CPP is there, sustainable and affordable, for today's working Canadians and for the coming generations.
And it reflects a wide consensus for change.
In joint federal-provincial hearings from coast to coast, we heard from actuaries and pension experts. From social planning groups and chambers of commerce. From seniors' groups and youth organizations. And from many interested, articulate individual Canadians.
And, the clear, concrete message we heard is that Canadians want … Canadians need … and Canadians count on the Canada Pension Plan.
Canadians were also clear on what they did not want.
They told us that the CPP should not be left to drift, should not be privatized, and should not be scrapped.
Canadians told us they want it fixed in a way that does not pass on an unbearable cost burden to younger generations.
And they told us that they want the CPP fixed now and fixed right.
They told us to preserve the CPP by:
- Strengthening its financing;
- Improving its investment practices; and by
- Moderating the growing costs of benefits.
To strengthen the plan's financing, the provinces and ourselves are proposing to accelerate contribution rate increases over the next six years to 9.9 per cent of contributory earnings. This is paid half by employers and half by employees.
Mr. Chairman, it is important to note that this 9.9-per-cent rate should be sufficient to sustain the CPP with no further rate increases.
Let us not forget that under the existing legislation, CPP contribution rates are already slated to go beyond 9.9 per cent. In fact, they were scheduled to reach 10.1 per cent in 2016.
Mr. Chairman, the 9.9 per cent "steady-state rate" will cover an individual's own benefits, plus a uniform fair share of the burden of the plan's "unfunded liability" which has built up over the years because we have not been paying our way.
This is the fairest way to honour our outstanding obligations.
The costs of pensions will be spread evenly and fairly across generations.
With this fuller funding, the CPP cash in hand will grow substantially.
A new investment policy, therefore, is being proposed to improve the way CPP funds are invested and to get the best possible return for each and every Canadian who contributes to the plan.
Every dollar earned from investments is one dollar less that must be paid by working Canadians and their employers.
Canadians deserve to earn the best possible rate of return, and, at the same time, to know that their benefits are completely secure.
Bill C-2 proposes that CPP funds be invested prudently in a diversified portfolio of securities by professionals. Great care will be taken to ensure that investment decisions are insulated from any form of political interference. The Investment Board will operate truly at arm's length from governments.
Mr. Chairman, we are coupling these major changes in financing and investment policy with some changes to the administration of benefits and the way they are calculated.
But let me emphasize that these changes will not affect the pension benefits received by any current senior.
And the bottom-line is that 75 per cent of the changes are on the financing side, and only 25 per cent on the benefit side.
Mr. Chairman, before concluding, I would like to touch on some of the ‘alternative' views and criticisms that have been levelled at the federal-provincial agreement on the CPP.
To start, there are a few who argue that the CPP is not in immediate danger and there is no need to "rush" to make fundamental changes.
Let me just say that those who claim that there is nothing wrong with the CPP must live on another planet.
The easiest thing for a government to do is to stick its head in the sand and pretend that there is no problem.
Simple mathematics and common sense make clear that the more we delay, the more contributions will have to be increased in the years ahead.
Any rational, objective assessment leads to the same conclusion – that the fairest thing to do – the only responsible thing to do – is to make sure that people like you and me and the baby-boomers in this room start paying more now while we are still working, so that our children are not stuck with a truly punishing bill.
A second issue of debate is the view that C-2 represents a "tax grab" in the form of higher CPP contributions – and that it should be counter-balanced by cuts in Employment Insurance premiums.
This is "apples and oranges" logic – and it's misleading.
CPP contributions are not a tax. They are savings that go to pensions and other family protection benefits. They go into a separate fund, not government coffers, and will be invested like other pension plans.
Yes, there's no question that taxes should be lowered.
That's why we have just moved to reduce EI premiums by 20 cents – a $1.4 billion saving for Canadians.
And that's why we have pledged to apply part of the fiscal ‘dividend' – when the federal books are balanced – to further tax relief.
However, we must not let the need to preserve and sustain the Canada Pension Plan become an issue of false trade-offs and partisan linkages.
Canadians looking forward to security in their retirement years deserve real solutions, and that's what C-2 delivers.
This brings me, Mr. Chairman, to the other end of the spectrum.
There are those who suggest that the CPP is beyond repair and that better pensions can be provided through mandatory RRSPs at a better cost than the CPP.
First of all, Mr. Chairman, let me be clear that RRSPs are an essential and very important part of Canada's retirement income system.
Canadians planning for their retirement depend on both the CPP and income saved in their RRSPs.
As I said in my economic and fiscal update, the tax assistance provided to Canadians saving for their retirement through RRSPs and RPPs will be improved as quickly as circumstances permit.
However, Mr. Chairman, Canadians from coast to coast made it abundantly clear that they do not want all of their basic retirement pension resting on the success of private investment decisions.
And they are thinking wisely.
Let's recognize what a totally privatized, RRSP-scheme really means.
First, there would no longer be a guaranteed, predictable component of retirement income. Canadians' retirement would depend on their ability to anticipate and manage in an often volatile stock-market – like we've seen over the last two months. For each and every Canadian, retirement planning would, in the end, depend on luck -- or a degree of investment savvy virtually without parallel.
Second, time spent out of the workforce raising children would mean a lower retirement income.
And third, entire families would no longer be protected against the loss of income due to the death or disability of a CPP contributor.
Most Canadians understand these concerns.
That is why they want the security that is provided by the CPP as a public plan, with the government standing behind it.
This is why they want the CPP fixed, not scrapped.
But apart from the security that the CPP furnishes, what about the value it provides?
Is it really true that mandatory RRSPs could provide equivalent or better benefits at a lower cost than the CPP?
I asked my officials this precise question, and would like to share their analysis with you.
First, with the new investment policy, the CPP fund will earn as good returns as anyone investing privately could expect to earn, with the added advantage of having the government standing behind the defined benefits which the CPP provides.
Second, the administrative costs of the CPP, and the costs of investing the pool of CPP funds, can be expected to be considerably lower than the costs associated with millions of individual plans.
For example, we expect costs for the CPP Investment board will be about one tenth of one per cent of assets – in line with large pensions plans. But the comparable cost for individual RRSPs is commonly about 2 per cent – 20 times higher.
And factoring the full range of costs into account, it is likely that mandatory RRSPs would cost Canadians 15 per cent more to deliver what the CPP provides.
Third, the CPP protects families when a breadwinner becomes disabled or dies, and it protects the pensions of parents who take time out of the workforce to care for young children.
RRSPs cannot do that.
So, Mr. Chairman, how can critics of the CPP maintain that individual mandatory retirement savings plans provide better value?
I can only conclude that they are ignoring the very real cost of honouring outstanding commitments under the CPP – commitments not only to today's seniors, but to those who have been paying into the CPP for years and are counting on a pension when it is their turn to retire.
Let those who would explode the CPP explain very clearly who is going to pay for the almost $600 billion at issue here.
Which taxes will they raise? And by how much? No sleight of hand is going to take care of that $600 billion.
And what would this mean for young workers, and those coming into the workforce in the years ahead? Ultimately, replacing the CPP with some sort of mandatory RRSP would hit them with a triple whammy.
They'd be forced to:
- Honour the obligations to their grandparents – seniors currently receiving pensions;
- They would have to honour the obligations to their parents – paying them the pensions they have been contributing to for years and expect to receive when they retire; and
- They would be expected to set up and contribute to their own RRSP accounts.
Furthermore, if they wanted the same protection as the CPP provides, they would also have to pay for private disability and life insurance. The costs of all this would be staggering.
In conclusion, Mr. Chairman, this government – and the governments of all the provinces which support the agreement – will not renege on our responsibilities.
The obligations of the CPP will be honoured.
The Canada Pension Plan must continue to provide Canadians with a solid and secure base on which to plan their retirement, and at a cost they can afford.
Bill C-2 reflects a landmark agreement that faces up to and meets our responsibility squarely and honestly. It deserves your support and timely passage. Thank you.
|
|
||||
| Last Updated: 2005-01-04 |
|
||||
