National summit on pensions: We must protect the most vulnerable during golden years

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This week in Fredericton the provincial government is sponsoring a national summit on pensions. The aim of the gathering, which includes Premier David Alward and federal minister of state for finance, Ted Menzies, should be to help ensure that all Canadians have a reasonable standard of living during their golden years.

In recent years tens of thousands of Canadian retirees have seen their pensions wiped out during bankruptcy proceedings. Under the current rules working people who've paid into pension plans have little protection when their employer goes under.

In Edmundston, New Brunswick 500 retirees of Fraser Papers lost between 30 per cent and 40 per cent of their pensions -- up to $8,000 per year -- when the company filed for protection under the Companies’ Creditors Arrangement Act (CCAA) four years ago. As an unsecured creditor in bankruptcy protection, the pension plan received little of the $219 million it was owed. On the other hand, the company’s secured creditors, including Brookfield Asset Management, CIT Bank, CIBC and the Government of New Brunswick, were paid the $110 million owed them. 

Unbelievably, the principal shareholder that took Fraser Papers into CCAA, Brookfield Asset Management, maintained a dominant ownership position in the restructured company. In effect, this $150 billion corporate behemoth used bankruptcy protection to wipe out its pension obligations.

Bankruptcy laws that prioritize wealthy creditors over pensioners are fundamentally unjust. It's time to amend CCAA rules so employees' pensions are considered secured creditors, which have priority status over other creditors. Defining pensions as secured creditors under CCAA will not require any financial contribution from either taxpayers or employees.

Reforming CCAA rules to better protect pensioners during bankruptcy hearings will reduce the risk that anyone will have their income slashed during old age. But less than 40 per cent of working people even have an employer pension plan. As a result, it's important to expand the scope of the Canada Pension Plan, which covers almost all working people.

CPP has proven to be highly secure as risk is distributed over a huge pool of contributors and the plan is backed-up by the government. Its large scale also leads to far lower administrative fees than private pension plans. Finally, CPP payments are tied to inflation and the program is portable across provinces and jobs, which is especially important with the growth in contract work. 

Though its funding model is lauded internationally, the scope of the CPP is limited. It covers about half the average wage of the public pensions that exist in most high-income countries. As such, the Canadian Labour Congress has called for doubling CPP benefits by gradually increasing, over a seven-year period, workers' and employers' contributions by slightly less than 3 per cent of wages. This would bring the maximum CPP benefit to approximately $24,000 per year when fully phased-in.

While CPP payments are available to almost all retirees who worked formally Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) provide basic economic security independent of a person’s lifelong working status. The GIS tops up OAS benefits for those with little or no other income.

Unfortunately, OAS and GIS payments still leave beneficiaries significantly below the poverty line as defined by the Canadian Low Income Cut-off. To help reach this poverty threshold, GIS benefits should be raised by 12 per cent, which would cost about $1 billion. This can be covered by reducing RRSPs tax subsidies by less than 7 per cent. A small shift of public funds from RRSPs to the GIS would ensure a decent standard of living for some of the most vulnerable members of our society.

This week's pension summit should focus attention on the need to double CPP payments, divert a small proportion of RRSP tax breaks to the GIS and amend CCAA rules so employees' pensions are secured creditors during bankruptcy proceedings.

 

Dave Coles is the National President of the Communications, Energy and Paperworkers Union of Canada (CEP).

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