Some basics on the following issues: 1. The public pension system (Old Age Security/GIS and Canada Pension Plan) 2. Workplace pensions and the attack on pensions 3. The funding of pensions and the tensions inherent in 'financialized' retirement security

1. CSJ Pension “Primer”
Friday, September 20th, 2013
Centre for Social Justice
720 Bathurst St.

2. Agenda
* Introductions & Goals,
* Ground rules for the session
1) Public Pension System
2) Workplace pensions
3) Employer and government attacks on
pensions
4) Tensions in private and “financialized”
retirement security
Q & A & Discussion

3. 1. Public pension system

What IS a pension?

Fight for “old age” pensions dates back 200+
years, relates to disability and unemployment
struggles

Police, military, government workers
(Hamilton)

Railroad, banking/insurance

Old Age Security 1927 (means tested), 1952
(universal)

Canada Pension Plan (1966)

4. Public pension system cont'd
CPP benefits:

Up to 25% of Avg Industrial Wage
(2013:$12,775) – Avg pensions: $6,300/yr

100% indexed, age 65 (early retirement at 60
w/penalty)

Disability component, survivor benefits etc
OAS benefits:

$6,600 / yr (w/residency requirement)

100% indexed, age 65

(Harper phasing in age 67)

5. Public pensions cont'd

Wage derived systems reproduced gender
inequalities

LICO poverty rates among single senior women only
recently came down due to CPP maturity (1970s: 70%,
1990s: 40%, 2013: 14%)

Much continuing debate about current status, but
very small public system crucially important

OAS-GIS funded by general tax revenues, CPP funded
by payroll contributions

1998 – CPP investment policy changed

6. 2. Workplace pensions

Widely established only in post-war period, combination
of industrial base (auto, steel, etc) and public sector

A compromise for labour movement – some were fighting
for European style public systems, ended up winning US
style workplace based system with minimal public
foundation (US & UK influence)

Defined Benefit plans were the standard model, only
recently have RRSPs & “defined contribution” plans
emerged

Pension coverage peaked in 1991 – 45% of workforce
covered by a registered pension plan

7. Workplace pensions cont'd

Defined Benefit Features:

A formula defines the pension that is “promised”

Collective pool for investing contributions

Funding security, with employer liability (or mix)

Once earned, benefits are not reducible – need a
source of funding

Pay a life “annuity” or pension

Often “indexed” to inflation, early retirement options

Risk is spread across entire worker population, shared
with employer, and spread over time

8. Workplace pensions cont'd
Defined contribution (DC) features:

No promised benefit formula, risk borne by worker

Individualized scheme (like RRSP), investment options
up to individual

Result is “lump sum” at retirement, not a pension –
options to annuitize, stay invested, hope $ doesn't
run out

Highly subjected to marketing by industries

“Vested” and covered by some investment rules
(unlike RRSPs)

9. 3. Employer & Gov't attacks on
pensions
In the neoliberal period, expansion of
workplace plans was turned around
dramatically (1991 peak of coverage)
Non unionized private sector went first
(Banks, insurance, smaller employers)
More recently, unionized private sector (Vale
Inco, St. Mary's Cement, Air Canada, Big 3
Auto)
Very recently, unionized public sector also
under attack (Fed PS, OPS & public

10. Attacks cont'd
Rationale for attacks:
●
Financial markets no longer delivering high
returns
●
2008 financial crisis & long term interest
rates & rising mortality combining to
produce large deficits
●
Pensions being declared “unsustainable”,
no longer “affordable”
●
in some cases, employer costs truly are
spiking

11. Attacks cont'd
●
Benefit cuts (indexing dropped,
early retirement cut, basic formula
reduced, etc)
●
Closure of DB pensions, new hires
model – two-tier pension
structures
●
More recent: transfer DB risk to
members through “Target Benefit”
type plans (NB, OTPP, etc)

12. 4. Tensions in “financialized”
retirement security
Was original establishment of workplace
based plans a mistake? (GM vs UAW)
In US & Canada, private finance resisted
public programs, promoted various
alternatives including workplace based
private arrangements

13. Tensions cont'd
Peter Drucker, Pension Fund Socialism
(1976):
●
Exaggerates pension ownership of equities
●
Endorses new ownership reality as a kind
of “end of history” - workers now owners
●
Workers, unions, can now understand
business priorities, tax policy, wage policy

14. Tensions cont'd
●
Certain socialists, trade unionists take up
idea that real economic power available to
transform society, possibly socialize
ownership
●
Meidner Plan in Sweden
●
Robin Blackburn revives Meidner in 2002
for UK, US

15. Tensions cont'd
Various kinds of social reformers also
inspired by concepts:
●
Some unions seek control or joint control
●
Emergency of “socially responsible
investment” (faith groups, others)
●
More recently, “sustainable investing”, and
even “sustainable capitalism” (Robert
Monks)
●
Are we trying to “save” capitalism, or
transform/overcome it?

16. Tensions cont'd
●
Pension funds no longer passive investors!
●
The “Rise of Finance”, and financialization,
has meant more political and economic
power to finance
●
OMERS, OTPP role in privatization (P3s)
●
Pension fund “imperialism”?
●
LBOs, private equity (restructuring), hedge
funds (Porter Airlines, Cari-All, foreign
water P3s)

17. Solving the tensions?
Strategy #1 – Work within the system:
We should seize tools at hand, work within
financial system via corporate governance,
SRI, UN Principles of Responsible
Investment
Strategy #2 – Challenge the system itself:
We need a class based strategy to re-
construct retirement security for all workers,
with less integration with capitalist finance,