CARP issued an open letter to the Prime Minister and all Provincial Premiers calling for retirement security to be made a priority at the November 10th First Ministers’ meeting and that a pension summit be called, which includes retiree groups, to deal with the threatened retirement security of millions of retirees. A copy of the letter may be found here.
Finance Minister Jim Flaherty raised the issue of pensions at the meeting of finance ministers this week and CARP is asking that at the First Ministers’ meeting, the focus also include protection for the pensioners not just relief for the fund managers.
Moratorium on RRIF Withdrawals
CARP is asking that immediate relief be provided by a moratorium on mandated RRIF withdrawals. Current tax rules require people to withdraw fixed amounts from their RRIFs after reaching age 71 and many must sell their stocks to fund the tax payable on such withdrawals.
The situation is made worse by the precipitous drop in stock values and the fact that the amount to be withdrawn is calculated on December 31 of the previous year. So, not only are the savings depleted by the mandatory withdrawals, but with the reduced value, many more units must be withdrawn to meet the minimum withdrawal requirements and the retirement savings would be depleted at alarming rates. This compounds the anxiety that is already being felt as retirees watch their savings disappear before their eyes.
CARP has been inundated with calls from its members across the country who are looking for government action and see a moratorium on the mandated withdrawals as a measure of immediate relief.
CARP’s position has been that the mandatory withdrawal provision should be eliminated entirely but we are prepared to endorse the two-year moratorium as an immediate first step to deal with the current crisis faced by so many retirees across the country. CARP’s letter to Minister Flaherty was sent October 29, 2008 and no reply has been received to date.
Pension Fund Protection
CARP responded to reports that employers lobbied government to suspend their obligation to fund deficits which is the opposite of what pensioners have demanded. Now their pensions would be even more at risk.
CARP has called for better protection for pensioners by requiring that pension surpluses in good economic times be set aside in contingency funds to be used to fund deficits in bad times. The insurance industry has such contingency requirements. Instead, pension surpluses have been used for contribution holidays leaving the funds vulnerable in market downturns.
However, retiree groups are cautious about opposing the extension of time to fund deficits because a bankruptcy would result in reduced pension payments, putting them between a rock and a hard place.
CARP therefore asks that before allowing any relief to fund sponsors, that certain pre-conditions that protect pensioners be put in place. The fund sponsors should be required to:
1. reduce exorbitant executive salaries;
2. create sufficient reserve funds when times are good, in order to eliminate shortfalls when asset values decline; and/or
3. borrow funds needed to fully fund their pension obligations, with those loans guaranteed by the Federal Government, similar to the recent aid afforded to banks