The Feeling’s Not Mutual: The High Costs of Canada’s Mutual Fund Based Retirement System

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2015/02/Feelings_Not_Mutual.pdf

A new study by David Macdonald for the Canadian Centre for Policy Alternatives looks at how the high costs of mutual funds in RRSPs compared to the low cost of defined benefit pension plans could make retirement later for many. Here is part of the excecutive summary.

Executive Summary
The primary vehicles Canadians have for managing their savings are pen-
sion plans and mutual funds, and in 2014 each held over $1 trillion in assets.
Over the past two decades, policy-makers have promoted Registered Retire-
ment Savings Plans (RRSPs) as the best option, with much of those personal
savings going into mutual funds. Traditional pension funds are in decline.
They covered 43% of workers in 1977 but now cover only 27%.

In 2014, weighted pension plan fees were 0.38% of assets while compar-
able mutual fund fees were 2.1%. In both cases, investors do not pay those
fees directly, nor do they have a choice in the matter. The fees are withdrawn
from their fund returns without the investor ever seeing the exact amount.
If the higher fees on mutual funds (2.1%) seem small, we must remem-
ber that compound interest can work against an investor as easily as it helps
them. Over a lifetime of contributions, the average mutual fund investor
will have to work until age 72 to accumulate the same amount as the pen-
sion plan holder had by age 65 due to this seemingly small fee difference.

 

Against Expanding the Tax Free Savings Account: Part Two

The second critique of expanding the Tax-Free Savings Account is from the Parliamentary Budget Office and is simply called: The Tax-Free Savings Account

http://www.pbo-dpb.gc.ca/files/files/TFSA_2015_EN.pdf

Here is part of the executive summary.

Executive summary

The Tax-Free Savings Account (TFSA) program
was started in 2009. It benefits TFSA
contributors by exempting TFSA investment
income from federal and provincial income tax
and transfer calculations. Under current rules,
the TFSA contribution room accumulates
annually for individuals aged 18 and over, so
PBO projects that contribution room will grow
from $1 trillion in 2015 to $9 trillion in 2080.1
Increases in TFSA contribution room will grow
the size of the exempt tax base over time. This
growth will not only increase the fiscal impact
of the TFSA program as a share of federal and
provincial budgets, but alter the distribution of
benefits toward higher income and wealth
households.

How will the TFSA affect government’s
bottom line?

In 2015, PBO projects the fiscal impact of the
TFSA to be $1.3 billion or 0.06 per cent of
Gross Domestic Product (GDP). Two-thirds of
this cost is borne by the federal government,
$860 million, while the remaining third
($430 million) affects provinces (Figure A-1).

By 2080 the TFSA fiscal costs project to
increase ten-fold, reaching 0.57 per cent of
GDP (Figure A-2). This growth effect is unlike
most program expenditures, which generally
grow along with GDP and are subject to
periodic parliamentary review. The TFSA, like
all tax expenditures is not subject to regular
review.

Who benefits?

PBO estimates that the TFSA program is
regressive, overall. Benefits skew to higher
income, higher wealth and older households.
Low-income households’ benefits range from
half to one-fourth the median between 2015
and 2080………

 

 

Against Expanding Tax-Free Savings Accounts: Part One

There are 2 new studies on the consequences of doubling the Tax Free Savings Account

The first is from the Broadbent Institute. Double Trouble: The Case Against Expanding the Tax Free Savings Account. Here is the Executive summary.

http://www.broadbentinstitute.ca/sites/default/files/documents/tfsa_report-en.pdf

EXECUTIVE SUMMARY
The Conservative Party of Canada’s proposal to double contribution limits for
Tax-Free Savings Accounts (TFSA) has received inadequate critical scrutiny to
date. This gap may stem from the notion that little revenues will be lost and the
perception that most taxpayers would benefit. Both beliefs are erroneous.
This study finds that no case—on either economic or equity grounds—can be
found for unconditional doubling of TFSA contribution limits. Over the long
run, doubling TFSA limits would cost governments additional billions in annual
tax revenues, put most of the lost taxes into the pockets of the already well-to-
do, and reduce the overall progressivity of federal and provincial tax systems.
The great majority of Canadians would enjoy no significant benefits. In fact, they
would bear the burdens of an expanded TFSA by enduring the reduced public
services or bearing the increased taxes needed to offset the lost revenues.

KEY FINDINGS
First, the existing TFSA already reduces the progressivity of federal and
provincial tax systems, and doubling the limits would exacerbate this bias in
future years. This study finds:
• When the existing TFSA scheme matures in 40 or 50 years, the cost to
the federal government is projected at up to $15.5 billion annually. This
represents a sharp increase from $65 million in its 2009 inaugural year,
growing to a $410 million cost in 2013.
• Provincial governments will also suffer revenue losses from the tax-free
nature of TFSA balances, growing to as much as $9 billion annually when
the system matures, figures that would similarly be inflated by a doubling
of the TFSA limits.
• Commitment by the federal government never to consider TFSAs in
the income tests for the Guaranteed Income Supplement and the Old
Age Security benefits will expose the program to growing numbers of
dependants and mounting costs in future decades. By 2050, annual
program costs could rise by $4 billion to several times that figure. econd, this study dispels the notion that doubling the TFSA contribution
limit would be of broad benefit to the taxpaying public and would boost the
economy’s performance. It finds that:
• The current combined contribution limits for RRSPs and TFSAs allow
ample room for the lifetime saving requirements of all workers earning up
to at least $200,000 annually. With the current $5,500 limit, one could
accumulate between $690,000 and $4 million depending on the rate of
return; an individual with the doubled limit or a couple with the current limit
could accumulate twice that amount, or between $1.4 million and $8 million.
• Usage of the current TFSA provision already displays a skew favouring
individuals at higher incomes, and this bias would be accentuated and
accelerated by a doubling of the contribution limits.
• The long-run benefit from doubling TFSA limits would go overwhelmingly
to the wealthy; current retirees and older workers would gain over a
transitional period but could be served without unconditional doubling of
the limits for everyone.
• Much of the increased contributions to TFSAs would come from the
transfer of taxable savings into accounts or the diversion of savings that
would otherwise go into RRSPs.
• Given the weak and broken linkages between household saving and
domestic business investment, doubled TFSA limits offer little prospect
for improved economic performance.
In short, the proposal to double TFSA contribution limits shares and even
surpasses many of the deficiencies exhibited by the government’s Family Tax
Cut scheme for income splitting: significant and growing loss of revenues,
differentially favourable benefits for high-income households, and reducing
the tax system’s progressivity. But unlike the family income-splitting scheme,
doubled TFSA limits will visit all of these afflictions upon defenceless provincial
treasuries.

Quebec makes sprinklers mandatory in seniors’ homes

Jacques BoissinotQuebec Labour Minister Sam Hamad enters the legislature for question period, Tuesday, February 17, 2015 in Quebec City. Hamad announced earlier the government will impose the installation of sprinklers inside all retirement homes within five years. THE CANADIAN PRESS/Jacques Boissinot

MONTREAL – The Quebec government is making it mandatory for all existing private seniors’ homes to be equipped with automatic sprinklers following a coroner’s report calling for action.

Labour Minister Sam Hamad said Tuesday that the province will grant operators a five-year grace period to retrofit their homes.

The move comes in the wake of a coroner’s report into a tragic blaze in L’Isle Verte, Que., that claimed the lives of 32 seniors a little over a year ago.

Hamad added that the government will also provide up to $260 million in financial aid to help offset the heavy costs, with the details to come in the upcoming provincial budget.

“For our government, seniors have a right to live in a place where they feel safe or where they are safe,” Hamad told a Quebec City news conference.

The government will look at all of the recommendations outlined in coroner Cyrille Delage’s report and tackle them one at a time, Hamad added.

Delage recommended the installation of sprinklers in all seniors’ homes, old and new, in a report released last week.

Hamad said the new measure will apply to most seniors’ residences, but there are some exceptions.

Seniors’ homes that accommodate a maximum of nine people and facilities with only one floor that do not include more than eight lodgings will be exempt from the new rules.

Those old-age homes would be required to have exit doors that are accessible to seniors being housed there.

But if a two-storey residence doesn’t have a balcony and exit doors, sprinklers would have to be installed, Hamad said.

“Following the events of L’Isle-Verte, we have the obligation to do everything possible in order to avoid a similar tragedy from occurring again,” Hamad said.

“It’s imperative that the government act to increase the safety of our seniors who are housed in these residences.”

Hamad also said the new regulations have been welcomed favourably by the Quebec Association of Fire Chiefs.

The head of the Quebec association representing elder care facility owners said he was pleased with Hamad’s announcement.

Yves Desjardins said that smaller seniors’ facilities would be forced to close if the government did not provide help to cover the high costs of sprinkler installations.

“The smallest residences have big financial pressures,” Desjardins said. “That’s why we were asking for financial support … to help them to maintain operations (and) to maintain seniors in their homes.”

Under Quebec’s old rules, sprinklers were only mandatory in seniors’ residences where the occupants are not mobile.

Only part of the 17-year-old Residence du Havre contained sprinklers and many occupants needed wheelchairs or walkers to get around.

An expansion to the three-storey, 52-unit facility was built in 2002 and the sprinklers in the new part of the building triggered the alarm.

Outside Quebec, a blaze in June 2009 at a retirement residence in Orillia, Ont., killed four people and left six elderly residents critically injured.

A coroner’s inquest which followed the Ontario blaze made 39 recommendations related to automatic sprinklers in retirement homes and assisted living centres.

That led to a new law in Ontario, which took effect on Jan. 1, 2014, requiring all retirement homes in the province to have automatic water sprinkler systems.

– with files from Peter Rakobowchuk

More from metronews.ca

New public dental program for seniors in Hamilton

This excellent initiative shows why we need a national dental program. Seniors would especially benefit.

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City will set up dental care program for seniors

 http://www.cbc.ca/news/canada/hamilton/news/city-will-set-up-dental-care-program-for-seniors-1.2964008

By Samantha Craggs, CBC News Posted: Feb 20, 2015 5:45 AM ET Last Updated: Feb 20, 2015 5:45 AM ET

Public health staff is setting up a new program to provide dental care to low-income seniors.

Hamilton’s board of health approved a plan to establish a new program for older residents, which will start in January 2016. It will cost $251,275 per year and be funded with unused dollars from programs for children.

Dr. Ninh Tran, the city’s associate medical officer of health, will report back in the fall with the details of the program. It already serves seniors through the adult dental clinic, and the dental health bus. But there’s a need for more.

Those options “only work if you’re physically able to get to our clinic,” Tran told CBC Hamilton. “One of the gaps is for many who have mental, cognitive or physical disabilities and can’t get there.”

Screening in other areas show there are seniors with cracked teeth, pain and infections going without dental care, Tran said.

Eight per cent of the people who use the dental clinic are seniors, while 10.5 per cent of dental bus clients are seniors, he said. About 50,000 of Hamilton’s roughly 80,000 seniors don’t have dental insurance.

Public Health would hire a dental hygienist to develop the program.

Coun. Tom Jackson of Ward 6 said he wants to make sure the program isn’t just for seniors in long-term care homes, but also for those with mobility issues who are still living in their homes.

“This is a gap in seniors’ services in the oral health area, especially those that are shut ins and otherwise can’t afford to have proper maintenance of their teeth and molars.”

Council will ratify the decision on Wednesday.

Quebec seniors’ home that caught fire was not up to code: All homes need sprinklers

http://www.ctvnews.ca/canada/coroner-says-quebec-seniors-home-that-caught-fire-was-not-up-to-code-1.2232511

Giuseppe Valiante, The Canadian Press
Published Thursday, February 12, 2015 4:17AM EST
Last Updated Thursday, February 12, 2015 7:11PM EST

MONTREAL — A Quebec coroner says all certified seniors’ homes in the province, old and new, should be equipped with automatic sprinkler systems to avoid tragedies like the one that killed 32 people a little over a year ago.

Cyrille Delage said in his final report into the fire at the L’Isle Verte, Que., home that while sprinklers “don’t solve all the problems,” they can at least slow the progression of the flames.

Fire swept quickly through the home in the early morning hours of Jan. 23, 2014.

The residence housed 52 elderly people, including many who couldn’t move around without the use of a walker or wheelchair.

The wing of the Residence du Havre that burned to the ground was not equipped with automatic sprinklers and that’s where many of those with disabilities were housed.

That was one of several issues uncovered by Delage in his report, made public Thursday.

Delage said the building wasn’t up to code.

He added firefighters did not have an evacuation plan for the seniors’ residence and they arrived late to the scene.

Moreover, he said several volunteer firefighters — including the fire chief — were not adequately trained because they were subject to a “grandfather” clause that exempted them from new training requirements.

“We will say in polite terms that during this (fire) intervention, the lack of training and preparation were very evident,” Delage said in his report.

Delage said the evidence presented to him indicates “for now” that the fire was accidental, but it will be up to the Crown to decide if anyone should be charged criminally.

The blaze started just after midnight on Jan. 23 on a particularly freezing, windy night, which hampered firefighters’ work.

The only staffer working that night was Bruno Belanger, who testified during the coroner’s inquiry that he had not been trained on the building’s emergency evacuation procedures.

Instead of helping the elderly occupants out of the home, Belanger said he went to wake up the co-owner Irene Plante.

Neither Plante nor Belanger were able to help evacuate the building because the smoke had become too thick.

The coroner’s inquiry also heard from a woman who took a video of the tragedy as she happened to be in the area travelling with her family.

The audio that accompanied the video was placed under a publication ban out of respect for the victims’ families because some of the elderly trapped in the building could be heard begging for help.

Delage called for a review of emergency procedures at seniors’ residences across the province.

“We have to better the security rules in seniors homes in order to avoid similar tragedies like the one that occurred at the Residence du Havre,” he said.

Delage said smoke detectors in seniors’ homes need to be loud and visible by both employees and the people who live there.

That wasn’t the case at Residence du Havre, where the smoke detectors were not located in each room and were not connected to a central alarm system that alerts the local 911 call centre.

Aside from recommending mandatory sprinkler systems, Delage said provincial authorities should encourage rural and urban cities and towns to centralize fire services and to regularly review fire-fighting procedures and have co-ordinated planning.

Quebec Premier Philippe Couillard said Thursday in Quebec City that his government will review the report.

“There are actions that will be announced very soon,” he said. “There are clearly things that need to be done.”

Public Security Minister Lise Theriault said the government has already taken steps to address some of the problems outlined in the report, having announced over $19 million for training for volunteer and part-time firefighters.

The coroner had strong words for some owners of seniors’ residences and politicians across the province whom he said might be angry his recommendations will cost money, as retrofitting older homes with sprinklers can be quite costly.

“Let them (be angry) up until the moment that another disaster like this one happens again,” he said. “They’ll have to explain to their constituents why they did nothing.”

Ontario Federation of Labour Submission on Ontario Retirement Pension Plan

http://ofl.ca/index.php/orpp-submission/

Summary

Every Ontarian deserves security and dignity in retirement and yet by every measure most workers face the prospect of an uncertain future. Despite public demand, provincial support and sustained lobbying from Canada’s labour movement, the Harper government has repeatedly rejected the call for an expanded Canada Pension Plan (CPP).

The result is a desperate situation where two out of every three Canadians without a workplace pension may expect to languish on sub-poverty CPP benefits when they should be enjoying their golden years. The average Ontario retiree receives a meager $6,800 a year from the CPP.

Yet, dwindling personal savings and ballooning household debt paint a bleak retirement future for Ontarians living in a province that has shed nearly 300,000 manufacturing jobs since 2000, and where half a million people (one in ten workers) toil for minimum wage. With the number of seniors expected to double by 2036, it is fair to say that the lack of retirement security is the crisis of our times.
This is why the OFL stands firmly behind the Ontario Retirement Pension Plan, but Ontario workers are counting on the government to get it right.

The OFL membership believes that mandatory universality is key to the success of expanded retirement security. Universal programs are time-tested in Canada—the Canada Pension Plan, Medicare, and Employment Insurance all function well and are relatively politically resilient, precisely because they are designed as universal programs.

This submission is designed to provide a road map for just such a plan. The recommendations contained in this submission are supported by unionized workers across the province because they would expand pension benefits to every worker and ensure that no one retires into poverty.

Click here to download the full submission:

Below is a summary of recommendations:

Recommendation 1:

Ensure that the ORPP is modeled on the CPP such that it could be folded into a future CPP expansion.

Recommendation 2:

Language specifying plan funding should reflect the secure nature of the benefit being promised.

Recommendation 3:

Design the ORPP to have universal coverage and include any employees who could benefit from the ORPP.

Recommendation 4:

Work closely with other provinces to ensure that ORPP accrued pensions can be carried with workers that leave the province.

Recommendation 5:

The Ontario government should consider providing targeted refundable tax credits on ORPP contributions in order to offset a greater share of low-income earners’ contributions to the ORPP.

Recommendation 6:

Investigate a reduction in the maximum allowable Registered Retirement Savings Plan contribution and allocate the savings to providing tax assistance for low income earners contributing to the ORPP.

Recommendation 7:

Work with the federal government to prevent the clawback of GIS benefits for those retirees receiving ORPP benefits.

Recommendation 8:

The ORPP should cover Ontarians in paid employment as well as the self-employed as much as possible, with the latter paying both employer and employee portions.

Recommendation 9:

ORPP assets should be managed independently by a public investment board accountable to the ORPP Board of Directors.

Recommendation 10:

Workers should have direct representation or representation through unions on the governing body of the ORPP.

Recommendation 11:

The Ontario government should explicitly exclude PRPPs as comparable plans to the ORPP.


COPE 343