Kiwanis Club of Barrie

July 14, 2009

Good morning and thank you to  Russ Hope for that kind introduction.

It is a privilege to be here this morning to give you an update about what we are working on in Ottawa in regards to getting our economy back on track.

I know that Russ has asked me to speak on issues regarding pension security and regulated pension plans, but I asked him if I could share with you what is happening right now in Barrie with regards to the stimulus package unveiled by the federal government.

Currently, a synchronized global recession is hitting every economy in the world. Canada as a great trading nation, is feeling the effects. While certainly not minimizing the fact that a number of Canadians are losing their jobs because of this recession, we can take some encouragement that the extent of the global recession reaping financial victims across the globe is less devastating in Canada compared to all other G8 countries.

One reason why Canada has been the last G8 nation to enter the recession and is projected to be the first to recover would be because of our emphasis on tax relief. In the past Wyman Jacques has always told me that he pays too much taxes and would like to see them cut and I am happy that our government agrees with him on this issue. The bottom line in terms of tax relief is that this year and over the next five, our personal income tax measures will put about $20 billion back in Canadians’ hands, and back in the Canadian economy to keep it moving forward.

Our plan also gives a shot in the arm to the home construction and home renovation industries- both key drivers of our economy. It allows first time homebuyers more flexibility to withdraw from RRSPs to make their purchase, and gives them a break through a tax credit on their closing costs.

Our plan also includes a new measure to let Canadians invest in the value of their homes,w hile putting trades people to work and giving a boost to those businesses that make and sell building products.

For the next two years, a new Home Renovation Tax Credit will apply to the cost of labour and supplies, and can save Canadians up to $1350 when they improve their homes. This should certainly create jobs across the country.

This means that as long as the improvement is fundamental to the house, meaning that you cannot move it when you move to another home, you can claim this tax credit. Now Dave Wismer can get that hot-tub, whether or not he’ll share it with anyone is up to him.

I am particularly encouraged by the record investment of 12 billion dollars into new infrastructure. I spent 5 years prior to my election to parliament as a City Councilor from 2000 to 2005 and for two of those years I was the city finance chair. I know how stretched municipal resources are. I am so glad that this government get it. The government and our finance minister recognize the crumbling infrastructure in this country needs help and there is no better time to create the jobs necessary to fix it than during the economic slow down we are facing.

Locally I have been fortunate enough to announce over 51 million dollars in federal funding for municipal projects. Some of these projects include building a new Fire Station 1 ($4,260,000 in federal financing) which was desperately needed in Barrie but continually put off because the funds weren’t there, expanding on Barrie’s airport ($4,596,000 in federal funding), renovating Eastview Arena ($865, 333 in federal funding) otherwise known as “The Barn” where teams had to change in shifts.

Other areas of local funding, and I am going to get in trouble for this, would be in the area of road improvement and construction. While this may be frustrating for those who are commuting within the city it has created many new jobs for Barrie Residents. Also there is the recent $3,000,000 in federal funding dedicated to the expansion of the GO Train in Barrie to include the Allandale Station. Finally I would like to mention the federal funding allotted for Georgian Colleges new Health Science Faculty building ($20,000,000 in federal funding) which will not only create hundreds of new construction jobs, but also hundreds of new full and part time jobs at the College itself and would make room for approximately 3000 new students at Georgian bringing the enrollment from 6,000 to 9,000.

And make no mistake, these jobs will restimulate the economy. For instance, they have a two year life, in other words these projects must be completed within two years of receiving a grant. This will ensure that jobs are created during this economic recession by making them available now and not four years down the road when we no longer have a recession. These jobs will ensure that people who get these jobs will then support local businesses thus as a result stimulate our local economy.

 With all that being said I would like now to focus on the issue of Pension security. With these uncertain economic times, many retirees or those in the workforce who are getting ready to enter retirement are concerned as to the security of their pensions.

Registered Pension Plans are either federally or provincially regulated. The Pension Benefits Standards Act, 1985 applies to pension plans of companies under federal jurisdiction.

When considering retirement income sources (RIS’) it is pertinent to note that there are three government supported pillars:

    First pillar: OAS and GIS programs
   
Second Pillar: CPP and QPP

Third pillar: Tax assisted private retirement savings (RPPs, RRSPs, and RRIFs).

Non-government supported retirement income sources include:
   
    Equity in owner-occupied housing
    Tax-Free Savings Accounts (TFSAs)

It is important with this changing economic climate to address issues surrounding federally-regulated pensions.

While federally regulated plans only represent approximately 7 percent of pension plans in Canada and have about 12 percent of pension assets they cover 1350 federally regulated plans representing 594, 000 members and are worth $132 billion in assets.

Given the monetary significance and vast nature of federally regulated pension plans we have undertaken reviews in two of the three Government-supported pillars to ensure their long term viability:
    The Second Pillar: CPP and QPP
&
Some elements of the Third Pillar: Tax-assisted private retirement savings (RPPs, RRSPs, and RRIFs)

The reviews included the CPP Triennial Review approved by the Federal, Provincial and Territorial Finance Ministers earlier this year, and now to be tabled in Parliament, as well as a Federally Regulated Pension Plan Review.

As a result of these reviews this government has come up with some temporary measures aimed at securing the health of federally regulated pension plans. These measures include:
Extend the solvency funding period by one year for deficiencies reported between November 2008 – October 2009.

Extend Solvency funding payment period to 10 years from 5 subject to conditions

If conditions are not met, remaining deficiency must be amortized over a new 5 year schedule

Crown Corporations are also eligible.

Allow asset smoothing above 110 percent

It is through these temporary measures that we were able to secure the future of federally regulated income sources. However it is also incumbent upon us that we work together with the provinces in partnership to make certain that theprovincial pension plans remain strong and intact as well.

For us to understand on how to best serve pension holders in Canada though, it is incumbent that the government take what the provinces and other stake holders into consideration. This is why we set up a consultation period and as a result we received over 200 unique submissions from cross-country consultation meetings. This consultation was vital in helping Canada to move forward on the path to recovery. It allowed us to asses and evaluate the information received and table appropriate legislation.

For instance, this study allowed us to take recommendations from all the provinces in regards to the pension system. Examples include:

    Alberta/ British Columbia
made 125 recommendations on improving pension regulation
recommended establishing a voluntary supplemental DC pension plan available to all Alberta and British Columbia workers.

Ontario
made 145 recommendations, mostly aimed at improving defined benefit plans

Nova Scotia

made 30 recommendations, mostly on defined benefit plan regulation
recommended establishing a voluntary provincial DC plan to enhance pension coverage.

This then leads us to question whether or not the pillars, together, adequately support seniors in retirement?

To answer this question we have established a Joint Federal-Provincial Review which is a research working group on retirement income adequacy. The findings of this taskforce came to the following conclusions:

First Pillar: OAS/ GIS provides a basic minimum income for seniors.

The OAS provides a monthly pension of up to $517 to most Canadian seniors, regardless of work history. OAS benefits are phased out for seniors with income over $66, 233

The GIS provides additional benefits of up to $652 per month to low-income seniors, for example, those who have little or no other source of income other than the OAS. The exact level of GIS benefits depends on marital status of an individual and family income.

OAS and GIS benefits are fully indexed to inflation and are financed from general government revenues.

OAS and GIS are currently providing $35 billion of benefits per year to 4.4 million Canadians.

Second Pillar: CPP/ QPP provide basic income replacement to all workers
The CPP is a compulsory defined benefit pension arrangement that covers all workers throughout Canada, except in Quebec. Quebec manages its own public pension plan, the QPP

The CPP is intended to provide replacement income of 25%  of earnings up to the annual earnings limit of $46, 300 fully indexed to inflation. It currently provides monthly retirement benefits of up to $909, as well as ancillary benefits in the event of disability or death of a worker.

The costs of CPP/ QPP are funded by contributions from employees, employers and the self-employed.

The Canada Pension Plan investment Board is responsible for investing funds set aside for the CPP. As of December 31, 2008 the CPPIB managed funds totaling $108.9 billion.

Federal, Provincial, and Territorial Finance Ministers, who are the joint stewards of the CPP, just concluded the current Triennial Review of the Plan on May 25th. It was confirmed that CPP remains financially sound, despite the financial market downturn, and that the contribution rate can remain at 9.9 percent of earnings, and a number of changes were announced to the CPP retirement benefit that will improve many aspects of the Plan.

CPP/ QPP covers about 16.5 million workers and pays $38 billion of benefits to 7.5 million beneficiaries.

Third Pillar: RPPs, RRSPs/ RRIFs provides tax assisted private retirement savings for workers.

Registered Pension Plans (RPPs) and RRSPs, and RRIFs provide a means for all Canadian workers to save for retirement on a tax assisted basis.

The deferral of tax on RPP and RRSP savings is a valuable benefit that encourages and assists Canadians to save for retirement.

The contribution and benefit limits for RPPs and RRSPs are designed to permit most Canadians to save enough, over a 35 year career, to obtain a private retirement income up to 70 per cent of pre-retirment earnings. These tax assisted savings limits are available to all Canadian workers, including the self-employed and are integrated so that the same limits apply for all workers whether they are members of a defined benefit or defined contribution plan, or utilize RRSPs.

The earnings replacement opportunities available through RRPs and RRSPs are over and above benefits provided by CPP and OAS/GIS
 
In 2007, assets in RPs, RRSPs, and RRIFs amounted to $2 trillion

In 2006, approximately 9 million Canadians saved in an RPP and/ or RRSP and 3.6 million received income from an RPP and/ or RRIF.

In 2007, RPPs and RRSPs/ RRIFs provided almost $40 billion in annual income to those aged 65 and older, representing 44 percent of retirement income system payments received by seniors. 


In conclusion, I would like to assure you that pension security for Canadians is a priority for this government. We have done more than just talk about this issue but we have taken action on it as well. We have listened to the people of Canada, to economists, and to consulting firms and we have outlined a path towards success and economic strength. 

Because of this, the people who built this great nation, the people who fought for our freedom, the people who started Canadian businesses and the people who have been positively contributing to Canadian society their entire lives, are protected through federally regulated pensions. If we can guarantee that this group of people is protected financially, we will emerge a stronger and wiser nation with all three Retirement Income System pillars intact.
Definitions

Asset Smoothing:

One of the key policy debates with respect to the PPA was the extent to which smoothing of interest rates and asset values would be permitted.

Asset smoothing provides an employer with greater predictability with respect to the value of its pension assets and thus greater predictability with respect to its funding obligations.

If an employer’s funding obligations were subject to the constant fluctuations of the market, funding obligations would be so unpredictable that business planning would be exceedingly difficult.

Since unpredictability is a primary reason for pension freezes and terminations, it is essential that some asset smoothing be preserved.