RRSP Fraud and the Tommy Douglas Moment

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UnionSupporter
RRSP Fraud and the Tommy Douglas Moment

I'm certainly hoping that this is the Tommy Douglas moment the author of this article claims it is:

Meanwhile, the Canadian Labour Congress, the Canadian Association of Retired Persons and the C.D. Howe Institute have unveiled public pension proposals that would significantly augment the current system. Financial experts ranging from Don Drummond, chief economist for the Bank of Nova Scotia, to David Dennison, president and CEO of the Canada Pension Plan Investment Board, have expressed support. The federal Liberals and NDP are on board. No wonder the CLC's Joel Harden calls it a "Tommy Douglas moment."

I wonder why the mainstream media is silent on this moment? Oh... never mind.

UnionSupporter

Whoa, Liberals keep driving the story in advance of the finance ministers' summit:

 

Grits back new pension plan, Reuters, December 8, 2009

UnionSupporter

It might be real, the mutual fund managers are starting to worry about it - who says the public won't tolerate nationalizing the banks?

Simply leaving their savings in a new public alternative to RSPs could deprive Canadians of personal financial advice, the Investment Funds Institute of Canada says.

"There's a belief that if you just create this big plan, that people don't need individual advice, and that just isn't true," Dennis Yanchus, the institute's research manager. "This is a big move that has a lot of implications."

UnionSupporter

And here is Ken Georgetti's op-ed from the Vancouver Sun today... keep it going!

"Last summer, we at the CLC called for a pan-Canadian pensions summit that would bring together government, business, labour and other stakeholders to develop real pension solutions. I am renewing that call."

Now we just need to find a representative for the non-unionized and self-employed to sit at the table.

Unionist

UnionSupporter wrote:

 

"There's a belief that if you just create this big plan, that people don't need individual advice, and that just isn't true," Dennis Yanchus, the institute's research manager. "This is a big move that has a lot of implications."

LOL!!! The main implication would be permanent unemployment for the liars, hucksters, and Ponzi schemers!

Thanks for opening this thread, UnionSupporter. Canada took a big step forward when the CPP was instituted. We are long overdue for the next step, which is eliminating the "three-tier" pension system - CPP/OAS for the poor, private fortunes for the rich, and employer-funded DB plans for the lucky or the well-organized. The CPP/QPP should provide 70% of final average earnings for all workers (or 80% or 60% or wherever we can go reasonably), with some brilliant actuaries hired to figure out how to fold private schemes into the single public one. I hope Tommy Douglas isn't the only one who can pull this off, as he's apparently no longer available.

ygtbk

I don't think anyone is actually proposing that CPP be expanded to cover 70% of final average earnings. The main proposals on the table seem to be doubling CPP benefits, phased in over time (CLC), a voluntary contributory supplement to the CPP (Ambatscheer, Liberals) and a regional plan for Alberta and BC.

It would also make sense to expand RRSP contribution room, to allow people without workplace pensions to fund their retirement better, but I haven't seen anyone advocating that.

Unionist

ygtbk wrote:

I don't think anyone is actually proposing that CPP be expanded to cover 70% of final average earnings.

I - Unionist - am proposing it! What am I - chopped liver? Laughing

Quote:
It would also make sense to expand RRSP contribution room, to allow people without workplace pensions to fund their retirement better, but I haven't seen anyone advocating that.

My proposal (if I'm allowed to join the Big Players in making proposals, that is) was to ELIMINATE private pension plans ALTOGETHER and replace them with a CPP/QPP that resembles current (good) employer-sponsored DB plans - of course that would require drastically increased employer/employee contributions and (as I said) a methodology of folding current private RSPs into the single new (socialist) public plan. Kind of like medicare for basic services, you know. As for RRSPs, I would ban those babies altogether - they would no longer be necessary.

 

ygtbk

Sorry Unionist, didn't mean to imply any degree of liverness or choppedness - just focusing on what's likely going to be discussed in Whitehorse next week. I don't think anyone (other than you) has come to grips with what would be involved in banning RRSP's or eliminating private pensions. I suspect Whitehorse will be _much_ more incremental.

Unionist

ygtbk wrote:

 I don't think anyone (other than you) has come to grips with what would be involved in banning RRSP's or eliminating private pensions. I suspect Whitehorse will be _much_ more incremental.

You're absolutely right - I haven't come to grips with what would be involved either.

But isn't it important for society to proclaim this as an aim - like universal health care and universal education - and then start coming to grips with what would be involved?

There was nothing "incremental" about Medicare. One day it wasn't there, the next day it was (in Saskatchewan anyway).

Should genuine retirement security for all (without the need for private plans and private savings) be the responsibility of society, yes or no? Instituting CPP/QPP was a huge step, but why do we have to wait 1/2 century to go to the next step?

peterjcassidy peterjcassidy's picture

re retirement security gets all-party support

OTTAWA – Rising above political posturing, the New Democrat Opposition achieved a significant victory today for all Canadians who are concerned about their retirement security. Pension Critic, Wayne Marston saw his motion to claw back millions in unearned bonuses to CPP execs and create a comprehensive retirement savings system get the support of all parties in the House of Commons.

“This is yet another major victory for all Canadians,” said New Democrat Leader Jack Layton. “This session, the majority of parliamentarians have supported New Democrat motions calling for important changes to credit card regulation, Employment Insurance and today, retirement savings. The Harper government must now implement the changes to protect middle-class Canadians and all those who are being left behind by this recession.”

Marston’s motion calls on the Harper government to:

  • Expand and increase the CPP, OAS and GIS
  • Establish a self-financing pension insurance program
  • Ensure that workers’ pension funds go to the front of the line of creditors in the event of bankruptcy proceedings
  • End the practise of rewarding bonuses to CPP investment fund managers and recover the $7 million in bonuses paid out in 2009.

“Consecutive Conservative and Liberal governments have failed to adequately protect Canadian pensions,” said Marston. “They’ve allowed millions in bonuses to be given to CPP executives while the average retiree only gets $500 a month. I am calling on the Prime Minister to take immediate action to protect retirement savings and ensure that this recession doesn`t bankrupt our seniors.”

 

http://www.ndp.ca/press/new-democrat-motion-to-ensure-retirement-securit...

 

UnionSupporter

ygtbk wrote:

It would also make sense to expand RRSP contribution room, to allow people without workplace pensions to fund their retirement better, but I haven't seen anyone advocating that.

Almost $500 billion of contribution room is already being carried forward. The challenge would appear that Cdns don't have more cash. Compound that with the fact that private financial advice, the mutual fund industry as alternative to the CPP model, shaves several points off the returns coming to what Cdns can afford to sock away. We don't need more of the same, we need a pension plan that benefits all, especially those people without workplace pensions. The majority it turns out.

ygtbk

Unionist wrote:

ygtbk wrote:

 I don't think anyone (other than you) has come to grips with what would be involved in banning RRSP's or eliminating private pensions. I suspect Whitehorse will be _much_ more incremental.

You're absolutely right - I haven't come to grips with what would be involved either.

But isn't it important for society to proclaim this as an aim - like universal health care and universal education - and then start coming to grips with what would be involved?

There was nothing "incremental" about Medicare. One day it wasn't there, the next day it was (in Saskatchewan anyway).

Should genuine retirement security for all (without the need for private plans and private savings) be the responsibility of society, yes or no? Instituting CPP/QPP was a huge step, but why do we have to wait 1/2 century to go to the next step?

I think I'd like to see more of the roadmap before I sign up for the destination. The total CPP contribution rate right now (employer/employee) is 9.9%. If the plan for universal 70% final average coverage involved rates going to (say) 30%, I wouldn't favour it.

ygtbk

UnionSupporter wrote:

ygtbk wrote:

It would also make sense to expand RRSP contribution room, to allow people without workplace pensions to fund their retirement better, but I haven't seen anyone advocating that.

Almost $500 billion of contribution room is already being carried forward. The challenge would appear that Cdns don't have more cash. Compound that with the fact that private financial advice, the mutual fund industry as alternative to the CPP model, shaves several points off the returns coming to what Cdns can afford to sock away. We don't need more of the same, we need a pension plan that benefits all, especially those people without workplace pensions. The majority it turns out.

It's a common myth that you have to give up several percentage points of return in RRSP's. Certainly the banks like it when you do that, but you don't have to. ETF's (Exchange Traded Funds) typically have management expenses of 1/2 percent or less per year, so you can cut expenses way down from what a typical Canadian mutual fund would have charged. As more and more people figure this out the mutual fund companies will have to adapt (i.e. cut charges) or die.

UnionSupporter

Well, if you read The Tyee article that led off this thread, you'll find some research that suggests ETFs aren't the answer either:

Of course, there is no law saying Canadians must invest their RRSPs in mutual funds. It's just that there are few other viable options available to small investors. It is possible to make an end run around high management expenses by investing instead in index funds or ETFs, whose expense ratios can be as low as 0.15 per cent (and are almost always below 1 per cent, compared to the 2 and 3 per cent charged by mutual funds). But these as well produce returns inferior to those of most institutionally managed pension funds. Under some circumstances, such as during the recent market turmoil, they can trail the performance of even mutual funds.


I've insisted on index funds for my RRSP, and faced a lot of push back from "financial advisors" at my credit union. At the big banks consumers aren't likely to find anyone steering them toward an ETF or index fund. The RRSP was a gift to the financial sector, and privatization of a public interest. 

ygtbk

UnionSupporter wrote:

Well, if you read The Tyee article that led off this thread, you'll find some research that suggests ETFs aren't the answer either:

Of course, there is no law saying Canadians must invest their RRSPs in mutual funds. It's just that there are few other viable options available to small investors. It is possible to make an end run around high management expenses by investing instead in index funds or ETFs, whose expense ratios can be as low as 0.15 per cent (and are almost always below 1 per cent, compared to the 2 and 3 per cent charged by mutual funds). But these as well produce returns inferior to those of most institutionally managed pension funds. Under some circumstances, such as during the recent market turmoil, they can trail the performance of even mutual funds.


I've insisted on index funds for my RRSP, and faced a lot of push back from "financial advisors" at my credit union. At the big banks consumers aren't likely to find anyone steering them toward an ETF or index fund. The RRSP was a gift to the financial sector, and privatization of a public interest. 

Congratulations on avoiding actively-managed funds!

I think we can agree that the banks generally steer people towards higher-expense alternatives. But to put it bluntly, the bare assertion "But these as well produce returns inferior to those of most institutionally managed pension funds" doesn't really count as research. Some ETF's have done better than the CPP or QPP funds over the past two years, some haven't - depends on the ETF.

My point is that the claim that all retail investment alternatives have 2-3% expenses per year is made quite often, but it's definitely false.

UnionSupporter

@ygtbk: Well, the bare assertion is made following reference to some research. I expect you've read some of the burgeoning analysis as well, as you imply value in avoiding actively managed funds. Non-unionized and self-employed workers deserve the same kind of returns as those with pensions. The industrial model of union organizing is outdated, and we need to find a way to achieve this goal in the new economy. The CEP is taking a stab at it with their Freelance Union and there are interesting parallels in the US, for example the Freelancers Union, but the best option in my opinion remains expanding the CPP. I'd give up RRSP room to get expanded access to the CPP.

ygtbk

UnionSupporter wrote:

@ygtbk: Well, the bare assertion is made following reference to some research. I expect you've read some of the burgeoning analysis as well, as you imply value in avoiding actively managed funds. Non-unionized and self-employed workers deserve the same kind of returns as those with pensions. The industrial model of union organizing is outdated, and we need to find a way to achieve this goal in the new economy. The CEP is taking a stab at it with their Freelance Union and there are interesting parallels in the US, for example the Freelancers Union, but the best option in my opinion remains expanding the CPP. I'd give up RRSP room to get expanded access to the CPP.

Thanks for the link to Ambachtsheer (to whom I was referring in post #5, although I spelled his name wrong).

I think I believe 2/3 of the numbers quoted in the paper: that Canadian mutual funds underperform by 2.6% makes sense to me, because of their high expenses. That's why I was suggesting ETF's. But that pension funds will continue to outperform their equity benchmarks by 1.2% per year in the future is tougher for me to believe - and I'm not sure what updated numbers for 2009 would look like.

I'm not against expanding the CPP. Adding a voluntary supplemental layer would go at least some of the way towards addressing the concerns you've expressed about the returns that people can achieve.

UnionSupporter

Some of the most extensive work on deconstructing the mutual fund promotional narrative is done by Fama and French, including this paper where they compare the performance of fund managers against chance and indexes. That study, "Luck Versus Skill in the Cross Section of Mutual Fund Returns," looks at the returns of 3,156 U.S. stock mutual funds from January 1984 to September 2006. Over the long run, all but 3% are apparently a net negative to the investor when compared to a low cost index fund.

Of course, it is buyer beware with index funds, as some are offered with outrageously high management fees.

A really attractive expanded CPP would be if it were a defined benefit, which brings a different complexity to the question of returns and shared risks.