CSJ Pension “Primer”

Friday, September 20th, 2013Centre for Social Justice

720 Bathurst St.

Agenda* Introductions & Goals,* Ground rules for the session

1) Public Pension System2) Workplace pensions 3) Employer and government attacks on pensions4) Tensions in private and “financialized” retirement securityQ & A & Discussion

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)

Public pension system cont'dCPP 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 etcOAS benefits: $6,600 / yr (w/residency requirement) 100% indexed, age 65 (Harper phasing in age 67)

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

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

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

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)

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 service, teachers, Canada Post, universities – Hudak white paper)

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● Contribution holidays no longer feeding employers,

some risk they don't return

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)● Erosion of pension legislation, locking in rules● Divide membership groups, foster generational tensions● Emphasize pension “gap” between workers with pension and

those without (i.e. “How much are YOU paying for your neighbour's pension?”)

● 2012 Harper government attack on OAS age of eligibility

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

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

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

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?

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)

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, through:

- Massive expansion of public system

- Gradually de-financializing pension system

- Synchronize with larger project of making banking a public utility under democratic control

Question: Are these strategies mutually exclusive, and if so, which one is more compelling?