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CARP's Submission in Response to Finance Canada's Regulatory Framework for Federally Regulated Defined Benefit Pension Plans consultation:
Financial Sector Policy Branch,
Department of Finance
20th Floor, East Tower
140 O'Connor Street
September 13, 2005
Via email: email@example.com
Comment on Private Defined Benefit Pension Plans DBPP
We welcome your investigation and review. DBPPs have lost their appeal in the private sector largely due to the financial obligations and associated fiduciary risk to private-sector corporations. Alternatives that are already underway may satisfy the financial security after retirement for those entering the work force but what about those on pension or soon to be retired?
: Politicians have an obligation to protect the interest of employees and pensioners who are the major stakeholders in DBPP. The economic circumstances that are forcing change were not the fault of the plan members. Many of them traded lower salaries and other benefits for the long-term security of what was considered a guaranteed level of retirement. On their behalf, unions and employee associations forfeited standards of living to achieve pension benefits in old age. Many companies added DBPP to attract and retain people with the skills they required. It is relatively recent that pensions have become portable to accommodate a more mobile work force. Most of today's retirees or soon to be retired lived during a period when employment was with one company or institution. It is unfair to put them at risk now. They did no wrong by accepting the norms of their time by embracing employment conditions that assured self-sufficiency and independence in later years.
If government is going to relax rules and weaken the security of DBPPs then it has an obligation to provide protection to those who are at risk during the transitional period. A Pension Benefit Guarantee Fund would seem to offer that protection just as CDIC and Compcorp protects bank deposits and life insurance programs. There needs to be some provision at least for those retirees and longer-term plan members while remedies are implemented for the current work force and society as a whole.
The investigation of employment pensions would not be complete without reviewing the unfair and discriminating tax burden suffered by many couples on pension. This occurs when spouses find themselves in different tax brackets after retirement. For some the resulting penalty can be as high as 46% more tax. Add OAS clawback and provincial taxes the penalty can be staggering. Other G7 countries offer options for splitting income to avoid penalizing retirees in this way. CPP/QPP conforms to the legal "entitlements" of both spouses for sharing by allowing income splitting to ameliorate tax penalties. Sharing income from other pension plans is allowed only after marriage breakdown. It is a sad commentary on our system that successful marriages would be excluded. It would seem perverse (and probably illegal) for grandma and grandpa to divorce and remarry to get tax fairness in Canada.
Spousal RRSP provisions came too late and were too little for today's retirees, especially for those with DBPP who were limited in their RRSP contributions. Tax changes in 1966 and in 1988 that created the disparity came after they were committed to a family structure that made it difficult for the stay-at-home spouse to enter or re-enter the work force to balance household income. It is too late now to send grandma back to work even if she has the skills.
Tax laws should allow senior couples the tax-filing option to split registered retirement earnings in a manner that would equalize taxes assessed to each.
We would appreciate the opportunity to participate in further discussions on this issue.
Please feel free to publish this in any format.
Chapter Chair and Co-Founder
Georgian Bay Chapter, CARP
RR3 Elmwood ON N0G 1S0
519 363 2552