The Banks and Supplementary Public Pensions
The Canadian Bankers Association are deeply opposed to meddling with a pension system which they say is working just fine.Â Which is understandable, albeit self-serving, given their dominance of the high fee mutual fund industry and the significant profits earned on spreads between low interest GICs and bank lending. The banks do just fine out of leaving individuals without decent pension plans to fend for themselves as investors in the financial markets they dominate.
They go on to say that, if governments sponsor any new pension plans along the lines suggested by three provincial pension inquiries ,” it must be made clear that the government is not providing any guarantees with respect to portfolio balances, rate of return or income stream.”
That is deeply hypocritical, given recent federal government backstops for the banks themselves.
Under the Extraordinary Financing Framework introduced to deal with the global financial crisis, the federal government offered to swap rock solid government bonds for up to $125 Billion of bank held mortgages, and the Bank of Canada allowed the banks to borrow dollar for dollar against risky, hard to sell assets. It is inconceivable that any Canadian government would ever let a major bank fail.
I guess the message is that it is okay for the government to backstop the banks, but not the pension savings of working Canadians.
The report is kind of interesting, for a couple of reasons.
1) At the bottom of page 6, the report obliquely acknowledges that some (I’d say most) Canadian mutual funds have high expenses. This may be a first from the CBA.
2) Starting on page 9, there is discussion of potential amendments to the Income Tax Act to allow for third-party-sponsored pension plans. This would be a substantial policy change and could lead to better pension coverage.
There are also some suggestions for RRSP’s and TFSA’s (increase contribution limits, make them more flexible), but these are pretty obvious and we didn’t need the CBA to tell us that.
The reality is that the main function of our private pension schemes – private pension plans of all sorts (defined benefit and contribution), RRSPs, TFSAs – is to provide subsidies to the financial industry and advisers. Expecting people to speculate in financial assets for 50 or 60 years to provide for their retirement is absurd and only serves the purposes of those who provide the instruments and advice.
Providing income to the elderly is a matter of distribution between age cohorts alive at any point in time and would best be done through direct federal government spending and taxation. No banks, no financial advisers, one actuary, no fees.
The people currently employed in those areas could be redeployed to more useful jobs, although a few would still be needed to cater to the well-to-do.
On delaying the payment of annual pension increases until a retiree reaches age 65, and then limiting those payments to the first $35,000 in retirement pay. The House approved a deficit-cutting plan earlier this month that relied.