OTTAWA – The pension system needs to be reformed quickly because Canadians aren’t saving enough to maintain their standard of living in retirement, says the head of the Canada Pension Plan Investment Board.
“Clearly the current system isn’t working as anticipated,” said David Denison, president and chief executive officer of the board, in a speech that broke his silence on the need for reform.
The Canada Pension Plan is on solid footing, he said, but it only provides retirees with about 25 per cent of their pre-retirement income, or about $11,000 a year in today’s terms.
Retirees rely on government benefits, company pensions and their own personal savings to make up the rest of their income, but those are no longer sufficient, Denison said.
“They’re just not creating the amount of retirement savings which will lead to sufficient income across Canada’s population in their retirement years,” he told reporters. “That’s why we think a fundamental re-thinking of how those operate is important.”
RRSP and corporate pension plans have been badly damaged by the financial crisis, he noted. And 11 million Canadians don’t have any company pension coverage at all.
He suggested that federal and provincial policy makers consider developing a new pension regime that would require all companies and employees with no company plan to pay into a fund.
The fund could be regional or national, but national would be preferable since it would make the pension benefits more mobile. Employees could opt out if they want.
Policy makers should also consider using the existing CPP structure to add a supplemental fund for those who want to boost their government pension benefits, Mr. Denison said.
While several experts have already proposed these two options, Denison suggests that a hybrid of the two would be better than either solution alone. Companies would still have the flexibility to tailor their own pension funds, but at the same time, contributors could take advantage of the federal investment board’s huge staff, low administration costs and widely respected minimal-risk model.
Provincial and federal finance ministers are to meet in Whitehorse in December in the hopes of agreeing on a plan that would improve the minimum level of retirement benefits for all. The federal government has also established a group to study options.
Joel Harden, the Canadian Labour Congress’s pension expert, said it’s a relief to see Denison, one of the country’s most important pension players, get involved and stress the urgency of the debate.
“I think everyone agrees now that the floor 1/8of retirement benefits 3/8 is way too low,” he said.
He thinks Denison’s proposals needlessly complicate the issue, however, and that the most effective solution to pension reform is to increase both benefits and premiums for everyone involved in the Canada Pension Plan.
The CLC’s proposes doubling CPP benefits, improving the guaranteed income supplement for low-income seniors, and setting up a federal pension insurance system.
