Canadians want a secure retirement funded by defined benefit model

Even their detractors admit they are the most effective method of building towards a secure retirement, but that recognition and wishful thinking alone won’t spark a revival of defined benefit pension plans in Canadian workplaces, say pension advocates like Larry Brown of NUPGE.

Brown, National Secretary-Treasurer of the National Union of Public and General Employees, says a societal attitude shift on the value of retirement security coupled with concrete policies to secure their revival is required if pensions are to see a resurgence in the private sector.

It’s estimated that 60 per cent of Canadians do not have an occupational pension. It’s little wonder a majority increasingly count retirement security as a top priority, and want to see that shift occur, but still await meaningful reform, including beefing up Canada Pension Plan benefits, says Brown. 

“If you asked Canadians if it makes sense that people have a secure retirement, the vast majority will say yes … we are in a situation where politicians of every stripe would say defined benefit is the best, but we really don’t have policies in place that encourage that.”

The first part of the equation, that a secure retirement from a defined benefit is unaffordable, needs to be challenged, says Brown, adding that Canadians are being fed a steady diet about what services are too costly – with most of the menu being programs on which working Canadians rely.

Why, he asks, can’t a working Canadian depend on a secure retirement when CEOs and top managers of corporations receive a pension that provides them with a very comfortable retirement?

“The argument that we can’t afford it is very one dimensional. It says that if it’s something working people have need of then we can’t afford it … we have to fundamentally challenge the fact that so much wealth and income is being redirected to the top one percent.”

Even if that shift occurs, and the overwhelming desire among Canadians for retirement security suggests it is happening, or at the very least is wanted, specific regulatory and tax changes are required to make it more attractive for businesses to offer employees pension provision, says Brown. Current rules, including reporting and actuarial obligations, may even prove a disincentive to workplace pensions, he adds.

To provide employers with an incentive to offer employees a pension plan, Brown suggests increasing contribution rates for employers without pension provision.

“If you don’t have a pension plan for your workforce, you should be paying more to the CPP than the employer with a pension plan. If an employer doesn’t bother to set up a workplace pension, then their CPP premiums should be probably doubled, but certainly increased.”

Brown is not alone in pointing out the inequity between employers who offer a pension plan and those who don’t. In an earlier interview, Canadian Labour Congress president Ken Georgetti maintained that employers with a pension plan are at a competitive disadvantage to employers who don’t have one, as the former carries the cost of the plan plus CPP contributions.

Labour leaders including Brown, Georgetti and Paul Moist, national president of the Canadian Union of Public Employees (see this story) argue that in the absence of workplace pension plans an enhanced CPP is the best way to provide Canadians with retirement security. However, the drive to bolster the CPP has, to date, failed to gain the necessary support from politicians and business leaders.

The argument that the country can’t afford to increase CPP benefits, paid for through increased contributions, doesn’t hold any weight with Brown.

“There is a ton of money in Canada. We are about three times more wealthy than we were 25 years ago, and for some reason 25 years ago we could afford to have (retirement security) for Canadian workers, and now when we are three times more wealthy as a country, we are told we can’t afford it.”

He also calls for a tax incentive to convince employers that adequate pension provision is good business.

“If an employer sets up a pension plan they’ll get a tax incentive for that, and if they set up a DB plan, they’ll get more of an incentive.”

There is a growing body of evidence that pensions are not only good for employees, they also aid employers in their recruiting and retention efforts. Adequate retirement income is also showing to be an economic stimulator, as retirees with money continue to be consumers. A report, Pensionomics 2012, from the National Institute on Retirement Security (NIRS) revealed that in 2009, American retirees with adequate retirement income created 6.5 million jobs and added $1 trillion to the economy.

With many business groups opposed to measures such as an enhanced CPP, Brown wonders if they think about where their customers will come from in the near future as waves of boomers enter the retirement years without sufficient spending power.

“If we end up in a situation in 20 years where the vast majority of Canadians don’t have any pension plan outside of an RRSP and the (current) CPP, that’s when the economy will be in serious trouble. There will be a huge number of retirees. They are entitled to retire in dignity, but the economy requires them to retire with a sensible income or else we are going to be in really rough shape.”

The federal government has responded to the lack of retirement preparedness with the Pooled Registered Pension Plan, a voluntary defined contribution program that doesn’t require matching employer contributions. Many pension experts have panned the plan as insufficient to head off what is being called a looming pension crisis. 

“The proposal as it stands is worse than useless. It’s so bad that even the C.D. Howe Institute, which is not a union-based organization at all, has said … that it is just going to be a block to real reform.”

Any meaningful solution to the lack of adequate retirement income must involve business, says Brown, either through an enhanced CPP or a revival of defined benefit plans. Enacting regulatory and tax changes to ease the return of the traditional pension would be the best possible outcome, he says.

“Defined benefit is basically a way for people to poll their resources and have financial advice available to the pool in a way that makes sense. People are never going to be able to get that capacity individually.”