April 1998
Old Age Benefits Threatened by Gov't Myths
The Canada Pension Plan is not going broke. People who receive Old Age Security benefits are not freeloading off the system. The CPP will be around for future generations, if the political will exists. By Cathy Majtenye
The Canada Pension Plan is not going broke. People who receive Old AGE Security are not freeloading off the system. The CPP will will be around for future generations, if the political will exists.
So says William Heshka, a former Air Canada executive who is ex-founder and secretary of the Council of Canadians' St. Catharine's chapter.
Heshka has made it his life's work to follow the debates surrounding old age benefits and debunk the myths he says are threatening to destroy the system Canadians have had since 1952.
A Government counts on ordinary Canadians not being able to absorb the details of the deceptions it bombards us with, Heshka said in a workshop at the February 27-28 conference Globalization Teach-In: Challenge to Democracy, at McMaster University.
Myth No. 1: The CPP is going broke. According to the government, the fund is unsustainable and the CPP will be exhausted by 2015, said Heshka.
This was true of the contingency reserve fund, maintained at two years of benefits, but CPP benefits are paid on a pay-as-you-go basis, not from a fund, Heshka told the workshop.
He explained that private plans must be fully funded in case the business fails. When that happens, the company must have enough money to pay out everyone's cheques.
Besides, the Canadian economy couldn't absorb the $556 billion (as of Dec. 1, 1995) needed for full CPP funding, he said.
But the CPP doesn't have to be fully funded because the government isn't about to go out of business, said Heshka. In 1996 the CPP was valued at $40 billion, $5 billion of which was the operating balance and $35 billion held by the provinces in the form of bonds, he said.
Myth No. 2: People who receive OAS are a drain on the system, especially if their incomes are high.
OAS is not a charity; it's a contract, said Heshka, adding that people have been paying into the system all their working lives. And the benefits were never meant to be income-tested, he says. The government must retain the OAS and the principle of universality.Myth No. 3: The CPP won't be around when young Canadians retire. The government doesn't (financially) support the CPP, Heshka said. The fund is paid for through employer and employee contributions.
He estimated that, by the year 2030, current contributors could get back up to five times the amount they invest today.
These and other myths are being presented and perpetuated by a government that wants to A reduce the role of the state for seniors@ as it makes deficit reduction the over-arching priority, said Heshka. This is being achieved by gradual cutbacks to the system that have taken place since the mid-1970's.
The latest round was announced last year by Finance Minister Paul Martin. Effective Jan.1 of this year, the combined contribution rates for the CPP rose from 5.85 per cent each year to 9.9 per cent in 2003, making maximum annual premiums jump from $945 to $1,635.
Meanwhile CPP benefits have been cut back $144 a year and the survivor death benefit drops by $1,000. The CPP which used to be managed by civil servants, is now being managed by an arms-length CPP Investment Board consisting of twelve appointed financial professionals serving three-year terms, a move Heshka also finds ominous.
AI share the fear that the appointment of this board is a step toward privatizing the CPP, Heshka told the workshop.
He said civil servants are responsible to cabinet which is responsible to Parliament. The Investment Board, on the other hand, is less accountable and democratic by its independence, said Heshka.
Administrative costs will also rise by having the Investment Board manage the CPP, he said. Heshka said there is only a one-per-cent administrative cost when the CPP is administered publicly while the cost is five per cent or more when privately administered, he said.
Heshka also expressed fear that an arms-length body may make investments that are somewhat riskier than provincial bonds. The amount that people finally receive may fall due to market fluctuations, he said.
Claw backs are severe!!
Looming on the horizon is the prospect that the OAS and Guaranteed Income Supplement will be replaced be the proposed Seniors Benefit Plan, an arrangement the government says will leave seniors in the same or better financial position.
From the age of sixty-five years, the seniors benefit would provide single seniors with $11,420 a year and $18,440 for couples, he said.
The payments would be tax-free, which makes it seem that seniors get a better deal, said Heshka. But claw backs and tax changes are severe.
According to a 1996 study by the Canadian Association of Retired Persons, for single seniors with incomes of less than $12,250, the seniors benefit would be reduced by $0.50 for every $1 of other income. Couples whose income falls between $12,250 and $25,921 would experience no claw backs. The claw backs would kick in when couples make more than $25,921; they lose $0,20 for every $1 of other income.
The seniors' benefit is clawed back completely at an income level of $52,000 for singles and $78,000 for couples.
These claw backs, along with certain tax changes, will be so severe they will dissuade young Canadians from purchasing registered retirement savings plans or from taking any other measures to save for retirement, Heshka told the workshop.
As well, Heshka said, the seniors benefit will not compensate for changes to the CPP. He estimated that, beginning in the year 2001, seniors with an income of about $15,000 receiving both CPP and the seniors benefit will receive $24 less each year.
Heshka blamed the government for its gradual cutbacks throughout the years, and urged it to hold cross-country parliamentary hearings. He said the government should respect universality, A past promises, the principles underlying public pensions, and the commitment to protect the vulnerable in society.
From the Prairie Messenger, March18, 1998
Information from Ont. Coalition for Social Justice.