October 14, 2011
Toronto, Ontario

Archived - Speech by the Honourable Ted Menzies, Minister of State (Finance) to the Investment Funds Institute of Canada

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Thank you Charlie (Simms, Chair of IFIC’s Board of Directors and President and CEO of Mackenzie Financial) for the kind introduction.

It’s my pleasure to be here in Canada’s financial capital speaking before such an accomplished audience.

These days, there are not many countries in the world where you could publicly praise the leadership and responsible practices of your nation’s financial sector.

A Strong Financial Sector for a Strong Economy

Then again, most countries aren’t like Canada.

We are indeed fortunate in Canada to have a financial and investing community that stands at the head of the world in terms of its responsible -- dare I say “conservative” -- approach to financial management.

For three years in a row, Canada’s banking system has been ranked the soundest in the world by the World Economic Forum.

And just recently, five Canadian financial institutions were named to Bloomberg’s list of the world’s strongest banks.

That is more than any other country.

While the global financial crisis resulted in an estimated $1.8 trillion in losses for banks and insurance companies around the world, Canada’s banks stood solid, bolstered by sound risk management and supported by an effective regulatory and supervisory framework.

Canada was actually one of the only countries in the G-7 that didn’t step in and bail out its major banks in the immediate aftermath of the 2008 financial crisis.

This was important for a couple of reasons.

First, it was fair to Canadians. Other countries taxpayers had to step in and foot the bill for bad decisions made by private sector businesses.

And second, it offered our Economic Action Plan more fiscal room to manoeuvre to address the broader economic aftershocks that occurred in the wake of this crisis.

This was significant. It can be seen in the relative strength of Canada’s recovery.

Supported by our Economic Action Plan, some 650,000 more Canadians are working today than when the recession ended in July of 2009.

We are the only G-7 country that has recovered all of the output and all of the jobs lost during the downturn.

Both the IMF and the OECD forecast that our economy will be among the strongest in the G-7 this year and next.

And just a few weeks ago, Moody’s renewed Canada’s triple-A credit rating based on Canada’s “economic resiliency, very high government financial strength, and a low susceptibility to event risk.”

More recently, that same top rating was affirmed by Fitch, with a stable outlook, citing a “culture of conservative policymaking” that allowed Canada to weather the global recession and recover faster than other nations.

A strong financial sector plays a fundamental role in supporting a strong economy.

And not just in times of crisis.

Workers, retirees and pensioners count on it for the security and growth of their deposits and investments to maintain the standard of living that they worked so hard to build.

And financial consumers rely on it for competitive financial products to keep their mortgages and other household financing affordable.

Businesses, large and small, also depend on it for access to competitive financing and credit to allow them to invest and grow.

For all these reasons, our government is committed to fostering an even stronger, more innovative and more competitive Canadian financial sector than ever before.

Building a Stronger Retirement Income System with Pooled Registered Pension Plans

All Canadians want and expect their government to focus on ensuring the long-term strength of Canada’s retirement income system.

And trust me … this government has been working hard on that.

Our latest action is a major initiative that will really benefit many Canadians that don’t have the same security of work pension as others - Pooled Registered Pension Plans, or PRPPs.

What are PRPPs you ask?

PRPPs are a new kind of defined contribution pension plan that will be available to employers, employees and the self-employed.

PRPPs will play a critical role in improving the range of retirement options available to Canadians by providing a low cost retirement savings option.

This is especially important to small business and its employees who will now have access to a low cost private pension plan for the very first time.

Because many small business employees and employers will “pool” their pensions a lower management cost will be achieved. Many of your clients and employees will be buying bulk.

It is an idea whose time has come.

In short, PRPPs will be efficiently managed, privately administered pension arrangements that will provide greater choice to employers and individuals, thereby promoting pension coverage and retirement saving.

And that is also why federal, provincial and territorial governments are working to implement PRPPs as soon as possible. 

I was happy to be able to go to every province and territory in this country and talk about the need for retirement savings and what the government is doing to help Canadians meet their retirement goals.

As I mentioned, PRPPs are the latest in a series of important steps your government has taken to strengthen Canada’s retirement income system.

This system is already recognized around the world by experts like the Organisation for Economic Co-operation and Development (OECD) as a model that succeeds in reducing poverty among seniors and in providing high levels of income replacement to seniors.

We recognise, however, that we can always do more.

That is why we have already made a number of targeted improvements to this system:

  • In 2009 we introduced changes to the framework for federally regulated pensions. I went coast to coast and consulted with Canadians about these pensions and what improvements we could make. The feedback we received was tremendous and resulted in many reforms. Reforms like, ensuring that an employer fully fund benefits if the pension plan is terminated.
  • We introduced the Tax-Free Savings Account, which is widely acknowledged to be the most significant private savings investment vehicle since the introduction of the RRSP.
  • And just recently, Budget 2011 announced a new GIS top-up benefit for the most vulnerable seniors.  Seniors with little or no income other than OAS and GIS will receive additional annual benefits of up to $600 for single seniors and $840 for couples.  This measure will further improve the financial security and well-being of more than 680,000 seniors across Canada and is the most significant increase to the GIS in 25 years.

All told we provided $2.3 billion in additional targeted tax relief to seniors and pensioners this fiscal year—measures like pension income splitting, increases in the Age Credit amount, and a doubling of the maximum amount of income eligible for the Pension Income Credit.

Where does the PRPP fit in?

The answer to that takes us back to May of 2009 when Canada’s finance ministers set up a joint federal-provincial research working group to conduct an in-depth examination of the retirement income system in Canada.

I was honoured to serve as its Chair.

And we were all fortunate to have Professor Jack Mintz of the University of Calgary, one of Canada's leading economists and an expert in the field, as the working group’s Research Director. He also helped author a report on this study.

The report found that some modest and middle-income individuals may be achieving a lower overall income replacement rate.

With these findings in hand, we worked collaboratively to analyze the wide range of ideas that had been put forward to effectively address the shortcomings identified in the research report.

The results of this exhaustive research effort and extensive consultations with Canadians led to Finance Ministers agreeing upon a framework for PRPPs in late 2010.

We opted to prioritize the PRPP framework over other options because unlike other options we had consensus from the provinces to move forward on PRPPs and address a notable gap in private sector pension options.

The design of these plans will be straightforward. They are intended to be largely harmonized across jurisdictions, which will also facilitate lower administrative costs. 

These features will remove a lot of the traditional barriers that might have kept some employers in the past from offering pension plans to their employees.   

I’ve actually been travelling all over the country this summer consulting Canadians and provinces and territories on how to make PRPPs as effective as possible.

Given IFIC’s expertise in these areas, I’d love to hear your views in this regard. In fact, I heard so many great suggestions in my travels this summer that I would like to open a channel for those Canadians I was not able to hear from on this important issue.  So I’ve set up an email box you can send them to: prpp-consultations-rpac@fin.gc.ca

If you go to the Finance Canada web site, you will find a button over on the left side of the main page that will take you to more background material on PRPPs for your consideration, including technical details on the framework.

We will keep this PRPP mini-site updated with any new developments.

Other Financial Sector Priorities

Now, as much as PRPPS have been a central point of focus for me personally, they are certainly not the only policy area where we as a government are acting to support a stronger, more competitive and innovative financial sector.

As this audience is no doubt aware, a significant focus of this work is on addressing Canada’s fragmented system of securities administrators.

Our Government is working with willing provinces and territories to establish a national securities regulator to offer:

  • Better protection for investors;
  • Simpler processes for business; and
  • A more comprehensive framework for addressing systemic risks that arise from capital markets.

Financial literacy is another area where we are working to bolster the efficiency of the financial sector.

Obviously, a strong financial sector depends on the ability of its users to make informed decisions.

That is why the Government launched the Task Force on Financial Literacy to make recommendations on a cohesive national strategy to improve financial literacy in Canada.

The Task Force delivered its final report on February 9, 2011, titled Canadians and their Money: Building a Brighter Financial Future.

The report outlined thirty recommendations to improve the financial literacy of Canadians.

And the Government is moving forward with implementing these recommendations.

The Next Phase of Canada’s Economic Action Plan

And we are also acting in ways that will support overall economic growth, which is critical to the health of the financial sector.

We are advancing this economic agenda on the understanding that the private sector needs the right conditions to drive the economy forward.

And with the Next Phase of our Economic Action Plan, A Low-Tax Plan for Jobs and Growth, we are taking significant actions to create these conditions.

Some of these actions include reducing the tax burden for Canadians: providing support to families and individuals, and encouraging businesses to make the types of productivity-enhancing investments that result in sustained economic growth.

As a result of broad-based federal and provincial business tax changes, Canada now has an overall tax rate on new business investment that is substantially lower than any other G-7 country, and is below the average of the member countries of the OECD.

And this tax advantage is aggressively positioning Canada for long-term success.

Forbes Magazine recently ranked Canada number one in its annual look at the Best Countries for Business.

Forbes specifically concluded that:

“Canada is the only country that ranks in the top 20 in 10 metrics that we considered to determine the Best Countries for Business. It ranks in the top five for both investor protection as well as lack of red tape which measures how easy it is to start a business. Canada moves up from No. 4 in last year’s ranking thanks to its improved tax standing. It ranks ninth overall for tax burden compared to No. 23 in 2010.”

So the world is increasingly taking notice of what many in this room already know.

And globally, more and more are putting their money to work on this understanding, and investing in Canada as the place to be in the future.

With the strong mandate we received from Canadians in the last election, and the Next Phase of Canada’s Economic Action Plan becoming a reality, these investments are going to pay off not just for investors, but for all Canadians.

Earlier this month, we introduced in Parliament the Keeping Canada’s Economy & Jobs Growing Act, which brings into force other key elements of the Next Phase of Canada’s Economic Action Plan to keep our economy moving forward.

This includes some really important measures, like a small business hiring credit that will provide up to $1,000 against a small employer’s increase in its 2011 Employment Insurance premiums over those paid in 2010. Approximately 525,000 firms will benefit from this temporary measure.

Canadian businesses have both contributed to and benefitted from our strong economic fundamentals relative to our global competitors.  To accelerate and deepen this trend, I would encourage them to take full advantage of the measures available in the Next Phase of the Economic Action Plan.

Because when Canada’s businesses success, all Canadians succeed.

This audience knows better than anyone that investing in financial markets is about more than just speculating.

Investing is about ensuring that good money is invested in good businesses with good ideas; companies who can turn that money into profits and investments -- creating jobs, building communities and leveraging the sort of broad-based economic growth that benefits all Canadians.

And that is what also provides the greatest return on your investment.

As world leaders in financial sector excellence, I would encourage you to continue your efforts in building a strong and resilient economy -- An economy that has outperformed others, and rewarded your customers in the process.

You can be confident that the Government of Canada supports your work.

Let me conclude by saying.

It is never too early to start saving.

Thank you all for your time.