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Submission
to the House of Commons Standing Committee on Finance Re: Recommendations For Amendments to Registration Rules under the Canada Income Tax Act Applicable to Registered Pension Plans December 10, 1999 An Employer’s PerspectiveWith sales of $1.4 billion, Unilever Canada
Limited, a
wholly-owned subsidiary of Unilever, is a diversified consumer products company
whose interests in Canada include Lever Pond's, Lipton, Good Humor-Breyers,
Lipton Monarch, Loders Croklaan,
BlueWater Seafoods, DiverseyLever Canada, Calvin Klein Cosmetics (Canada),
Elizabeth Arden Canada, and Bertolli Canada Inc.
Through
our operating divisions and our corporate head office in Toronto, we employ
2,500 people, many in highly skilled professional, managerial and technical
positions. Like many employers in
Canada with a broad range of occupational requirements demanding specialized
skills, Unilever has experienced an escalation in wages and salaries over the
last few years as we compete for a limited pool of skilled workers in Canada.
It is not uncommon today for senior technical staff, plant managers,
research and development technicians, etc., to earn over $100,000 a year.
A survey of our competitors and employers in other sectors would reveal a
similar pattern of wage and salary escalation. Canada’s
Inadequate Retirement Income System In spite of this trend toward wage and salary escalation driven by market forces, Canada’s retirement income system has not kept pace. It has been estimated that in
1976 defined benefit pension plans could provide a pension of 70 per cent of
pre-retirement income for an individual earning up to $85,750, roughly
equivalent to an RRSP contribution of $15,500.
Since then, the cost of living and the average wage have increased by
more than 200 per cent. Yet the
maximum payable from a registered pension plan has been frozen for 23 years and
the RRSP deduction limit is only $13,500. In
calling for amendments to the Income Tax Act to allow for increased pension
contributions, we are drawing attention to the needs of a growing number of
moderate – not high – income earners. When
set in 1976, the pension contribution limits would cover annual earnings of over
seven times the average wage. Today,
the limits cover a maximum of 2.8 times the average wage of C$31,100.
And, as society ages and the trend toward wage escalation continues, an
increasing number of Canadians will be unable to adequately save for their
retirement. Today, based on the current contribution limits for Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans, Canadians earning $76,000 a year or more are unable to adequately save for their retirement through contribution to registered plans. The current contribution limit of $13,500 ensures that Canadians earning more than $76,000 per annum cannot provide for 70 per cent of their pre-retirement income in their retirement years. Government employers in Canada would appear to implicitly acknowledge the inadequacy of the system as it pertains to private sector employees. The pension plans covering employees of the federal government and some provincial governments deliver, in conjunction with the CPP/QPP, pensions equal to 70 per cent of earnings to those retiring after 35 years of service through a combination of registered and non-registered arrangements. An Uncompetitive Retirement Income System As a multinational company employing individuals from many different tax and retirement income jurisdictions, Unilever is in a position to observe the inequity of the Canadian system, compared to our major trading partners. The Canadian system allows for maximum employer/employee contribution to all registered retirement savings vehicles of C$13,500, which will cover earnings up to C$75,000. In the United States, employers can contribute up to C$45,000 annually to tax sheltered retirement accounts which covers earnings up to C$240,000. In the United Kingdom, employers can contribute between C$40,000 and C$90,000 depending on the employee’s age which covers earnings up to C$225,000. Practically, as the Canadian subsidiary of a multinational, we confront the uncompetitiveness of Canada’s retirement income system when transferring employees to work in our Canadian business. To attract workers from the United Kingdom or the United States, typically we must guarantee the maintenance of the pension plan of the individual’s home jurisdiction. The Canadian system is so uncompetitive, it acts as a disincentive for internationally mobile professionals to transfer to Canada. Cost Disadvantage and Uncertainty of Non-Registered Plans In addition, what is a disincentive at home serves as an incentive to lure Canadians abroad. Employer-sponsored pension plans are important elements in an employee’s perception of appropriate compensation and security. From the standpoint of pension plans, Canadian employers cannot compete with employers in other jurisdictions like the United States, thus hindering the Canadian employer’s ability to attract international talent. The Canadian employer can enhance its compensation competitiveness by providing “top-up” pension plans, but as these are not registered and therefore not tax-sheltered the Canadian employer is at a cost disadvantage to its international labour competitors. In addition, as “top-up” plans are not registered, they
are not guaranteed. Theoretically,
an employer who goes into receivership or who simply ceases to operate in Canada
would not have to honour its promises under these non-registered, non-guaranteed
plans. Obviously, the uncertain
nature of these plans places employees at risk and fails to deliver on one of
the fundamental principles that a retirement income system should embrace,
notably predictability. The Opportunity for Increased Self-RelianceYet, the direction of employers and employees finding the means, through contract, to provide for retirement income is indeed the correct one. As is well known, Canadians are concerned about the future of their social security programs in general. Less than 30 per cent of Canadians under the age of 50 are confident that they will receive benefits from the Old Age Security Program and the Canada/Quebec Pension Plans. According to one estimate, during the next 35 years, the cost of our social security programs will increase by about seven per cent of gross domestic product, or C$50 billion per year based on an estimated 1994 GDP of $740 billion. According to the Canadian Institute of Actuaries, to tackle
both the debt and problems of an ageing society, a combination of tax increases
or spending cuts totaling 10 per cent of GDP or $74 billion per year will be
required. Without these cuts, a 70
per cent increase in federal and provincial income taxes will be required or,
alternatively, a 400 per cent increase in the Goods and Services tax or
an increase in payroll taxes totaling 17 per cent of pay. These figures suggest that some or all of our social
security programs may not be sustainable in their current form.
It follows that those who can afford to save for retirement should be
encouraged to do so, rather than discouraged under the current system with its
pension contribution limits. Employers, like Unilever, attempt to provide flexibility and
encourage self-reliance by, for example, providing both contributory and
non-contributory plans to their employees. Furthermore, it is notable that the largest source of
employment growth in 1990s has been through self-employment.
Self-employed circumstances and small businesses are the least likely to
have employer sponsored pension plans. As
this trend continues into the new millennium, relatively fewer workers will have
access to employer sponsored pension plan coverage, thus creating a greater
reliance on public retirement income sources and individual RRSPs.
From a public policy standpoint, it would make sense to mitigate the
potential over-reliance on government revenues and provide individuals with the
means to be self-reliant through increased RRSP contribution limits. RecommendationsUnilever Canada believes that the Government of Canada
should commit to double the RRSP and pension contribution limits in real terms
to $27,000 and increase the defined benefit pension limit by 74 per cent (from
C$1,722 to C$3,000) over a period of years, starting immediately, in order to
produce a more competitive retirement income system. We believe that these measures, in addition, to correcting
deficiencies in the retirement income system, also address some compelling
public policy needs; that is, to deliver tax relief to Canadians. Finally, it should be noted that what is tax relief to individual Canadians is tax deferral from the perspective of government revenues. Given the tax rates that apply to those currently constrained by the RRSP limit, the federal government will fully recover the tax revenue it foregoes today when these individuals withdraw their extra contributions after retirement.
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