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Lillian Dyck

The Hon. Lillian Eva Dyck, B.A. Hon, M.Sc., Ph.D. Senator Lillian Dyck was appointed to the Senate in 2005 by Prime Minister Paul Martin as representative of Saskatchewan. Before her appointment, Senator Dyck was one of Canada's leading neurochemists, whose research was instrumental in the development and patenting of new drugs to aid in the treatment of diseases such as Parkinson's, schizophrenia and Alzheimer's.

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Pooled Registered Pension Plans Bill—Second Reading

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Statement made on 14 June 2012 by Senator Grant Mitchell

Hon. Grant Mitchell:

I am intrigued by this proposal. I concur at the base level with Senator Eggleton, who raises serious questions and has serious suspicions about how effective this program will be. I would take it a step further and say I think this program is little more than a spin against a problem that the Conservatives have rightly identified. It will do absolutely nothing new — I await for the committee to convince us otherwise — that does not already exist in the marketplace and is working about as well as could be expected at this point. This will not enhance whatever is already in the marketplace.

I agree with the Conservatives that there is a problem. They say there is a problem and they acknowledge the problem with pensions. I agree. I think only 30 per cent of Canadians have any kind of structured pension plan, and not all are defined contribution plans; in fact, many of them are just group RRSPs administered in one way or another by their company, but they are not defined contribution.

That aside, 70 per cent of Canadians have no real pension plan at all, so they depend upon their own savings to create support for their retirement.

Let us consider the magnitude of that problem. If you had $1 million today and you could put that in the bank at today's interest rate, secure Government of Canada bonds, which is what our pensions will essentially be secured by, you would get about $35,000 as year. You can augment that a little by an insurance program, one of these institutional programs from which, when you die, you get no capital at all. You can augment that to some extent. Nevertheless, if you had $1 million, you are looking at $35,000 or $40,000 a year. How many people have a million dollars? How many people have any idea about how to get a million dollars by the time they get to retirement age? There are not very many. It is a huge problem.

With respect to defined contribution plans, some of which now are still corporate, there is the problem of the corporation going bankrupt, such as Nortel, and no one in this government defending the interest, for example, of those pension holders who lost huge amounts of money.

To exacerbate the problem, before they even started to attend to the problem, the government did two things. This government, among other things, reversed its field on income trusts. Many Canadians got decent income through income trusts, which were hammered by a government that said it would not do that. The government broke its promise: promises made, promises broken.

Second, they then reversed field on the OAS and made that kind of support more difficult to get.

Let us look at these PRPPs for what they really are. They really are a group RRSP. You can get a group RRSP now very easily in the market. Every major insurance company, bank and financial institution practically is happy to provide a group RRSP. How would a PRPP be different from that? If it were, if it offered some advantages, I suppose it would be worth pursuing. However, I have listened to Senator Tkachuk and I have listened to the minister, to the government, and there is no advantage, in my estimation, over group RRSPs. Let me count the ways that they have been established and let me argue against each and every one.

The first one I heard today was automatic enrolment — group RRSPs, automatic enrolment. Your employer says, "I will insist on you having it and I will match some of the money to make you more inclined to do it," then he goes to the bank, the bank sets up the program and it is automatically enrolled. It is no different. There is no advantage in this whatsoever.

Second, it is locked in, as if that is an advantage. Locked in is the most paternalistic thing you could do to someone who is saving money. This is coming from Conservatives who do not want governments intervening in people's lives. If I put it in my own RRSP or my group RRSP, my fees will be lower, as low as the PRPP, and I will not be locked in. If I find I have terminal cancer at 45 and I want to buy a Maserati, I can do it; or if my wife suddenly becomes ill and I need to go into our savings, I can do it in my own RRSP or in a group RRSP. I cannot do it in a locked-in RRSP. It is unbelievably paternalistic that you would, one, do it and, two, say it is an advantage. It is fundamentally a disadvantage.

Third, you say you will shift the liability. This is really dangerous. In fact, that argument is very dangerous. That is on the verge of misleading people in a significant way. Now what you are doing is comparing a defined benefit pension plan, whose disadvantage is that the employer can go broke and the pension plan can go broke with it — ergo, the employer's liability becomes the employee's liability, the pension subscriber's liability, like Nortel — and saying this will be solved by a group RRSP-type PRPP for which there will not be any employer liability. It is fundamentally different. There is no employer liability now in a group RRSP. There is no employer liability now on my personal RRSP. You are very misleading when you say that this is an advantage over existing pension plans. Wrong.

The type of pension niche that this will fit into will be small and medium-sized businesses where they do not have defined contribution plans anyway. That comparison is absolutely fundamentally wrong and very misleading.

Then the argument goes on that this will lower fees. Tell me how it will lower fees. First, they will invest in the same markets that everyone else invests in. We are not creating a new market, are we? We are not creating a new lower-risk market or some new kind of investment vehicle that somehow will magically make more money. No, we have stock, bonds and GICs. What else have we got?

I phoned a bank and I asked, "If I wanted to set up a group RRSP, what would the fee structure be?" They said that setting up and administering the group RRSP is free. There is no cost if you go to the bank to do it. Then, if you look at what you invest in, you invest in GICs and bonds, there is no overt fee on GICs and bonds. There is a spread, but that spread is not going away. That is a hidden fee, in a sense, but every bond you ever buy, the Government of Canada benefits from those spreads when they sell bonds. That is how the bond market works.

Then the third category would be stocks, mutual funds. You can go to the bank now and get a mutual fund with a fee that is less than 1 per cent. I defy you to find any PRPP administration that will be able to do that kind of investing with any kind of competence for less than 1 per cent. Right now, the services you are touting actually exist in the market and are efficient and private-sector driven.

The government's commitment to lower fees is very suspect. I will tell you how. OMERS said they would be happy to administer these PRPPs, but the banks and insurance companies rose up and said, "Wait a minute. You have an unfair advantage because you

do not pay taxes, so of course you can charge lower fees." You know what the government said? "Oh, we cannot have that. If OMERS administers one of these PRPP group RRSPs, we will set up a facsimile kind of tax or increase costs so that they will not have a competitive advantage," so where is your commitment to lower fees? It is nonsense; it does not exist.

Oh, yes, there is also the possibility, someone said, that we might get a centralized national pension administrator to administer these. That would streamline the process; it would cut the costs. Good luck. When you tried to get a centralized securities commission, which province said that was okay? What constitutional amendment did you get to get that through? Are you going to do that to get this? It will not happen, and there will not be lower fees.

Then they say there will be economies of scale that will get lower fees. There are billions and billions of dollars today in mutual funds and group RRSPs, you name it. If economies of scale have not reduced the fees yet, they will not reduce the fees in PRPPs. You might get bigger lumps of money if you actually made it mandatory, but you are not. Senator Tkachuk made that very clear today. It will not be mandatory; it would be almost politically impossible to do that. Go to Australia. They made it mandatory. They have billions, over a trillion dollars in their PRPPs. Fees have not gone down because there is tons of competition in that market today. There are tons and tons and tons of actors, and there are billions of dollars. There are economies of scale, and if it is not low now it will not be low, unless you do something magical, which you are not doing. In fact, you are dumping all over OMERS, who could perhaps lower fees.

Then they say better returns. If you got better returns, as I say, that would be great. It is the same market, so why would there be better returns? I do not know how that will differ. Maybe some of these PRPPs will hire the genius investors of the century and get better returns, but who knows? It is all risk.

The second place that the government misleads in a very dangerous way, and I heard them say it, is that there will be fiduciary responsibility. That is going to be the difference. You know what? Every mutual fund, every bank clerk, every lawyer — and I am looking at a great one over there, Senator Wallace — every single broker and financial adviser, anyone who touches your money or comes anywhere near it has fiduciary responsibility now. How will that be different with PRPPs? Fiduciary responsibility does not guarantee better returns. It does not even guarantee this, but it establishes a great deal of hope that you will not be ripped off by someone who is administering your money, and they will go to jail for it. It exists now. It will not be different with this program.

Do not tell me that it will have the advantage of automatic enrolment because group RRSPs already do. Do not tell me that locked in is an advantage, because it is horribly paternalistic. Do not tell me it will shift liability, because group RRSPs already do that. Do not tell me it will lower fees because group RRSPs and RRSPs have got them about as low as they are going to get, and banks do it for free now anyway. Do not tell me you will get better returns unless you change the whole market structure of the investment industry in the world. It will not happen.

What if there is extra RRSP room? That would be only a superficial advantage, because I think 20 per cent of Canadians actually use their RRSPs and most of do not maximize them. As Senator Tkachuk pointed out, $600 billion of excess room exists.

If one expanded that it might help some people to go from $18,000 or $20,000 or $5,000 a year, whatever their room was, to a little bit more. The honourable senator is not talking about doing that, so that is no advantage.

One might make it a little bit more accessible to homemakers, as Senator Eggleton suggested, where partners to a homemaker could invest on their behalf, et cetera. However, make no mistake about whether this is giving anybody extra access to investment room in a tax-supported way.

If I have $18,000 worth of RRSP room and I put it into this PRPP, I do not have any money to put into my own RRSP. I am just shifting from one RRSP to another. I get no more tax reduction, no more room to put in tax-deducted investments.

My point is that this will do nothing. I will support it to get to committee, but in the end it is just spin. The government has not thought it through or considered what really needs to be done, some other things one might do to really help fix this problem.

In fact, we are left with income trusts that have been cancelled and with OASs that have been extended. We are not helping business or individuals or filling the gap for the 70 per cent of people who do not have pensions and already have group RRSPs or RRSPs. I just do not see what the government is doing, except spinning to make themselves feel better that we are doing something to help people plan, save and invest for their future. I do not think they are, not one little bit.

I think they need to go back to the drawing board and do something real for Canadians and for their future so they can retire with some dignity. They will not be able to do it with this government.

Some Hon. Senators: Hear, hear.

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