TORONTO - Any reform to Canada's troubled pension system should increase coverage to millions of workers who have none, but not the government's role in its delivery, the president of Sun Life Financial Canada (TSX:SLF) says.
Dean Connor said Canada's finance ministers should consider an approach that would require employers to offer a defined contribution or group RRSP plan, unless they specifically opt-out.
"Millions of Canadians who should be saving for retirement are not. Millions more are not saving enough," Connor told the Economic Club of Canada on Thursday.
"I think the public expansion could work, I just don't think it's the best way to go," he said, referring to a recent Liberal proposal for a supplemental Canada Pension Plan.
Pension plans across the country have taken a massive hit from the combination of the financial crisis and historically low interest rates. With many companies facing financial difficulties, beneficiaries have often been left on the lurch.
Pensions will be on the agenda when Finance Minister Jim Flaherty meets with his provincial and territorial counterparts next week in Whitehorse.
Connor urged the ministers to allow multi-employer programs that would expand coverage to some 3.5 million middle-income private sector employees who have none.
Multi-employer programs would make it easier for small businesses, non-affiliated employers and the self-employed to offer coverage through banding together to create a large fund.
"Currently, they can't do that and interestingly, when people say why is that? The answer is: nobody can remember, which tells me it should be an easy law to change," Connor said.
He also pushed for required auto-enrolment in workplace plans, as well as automatic escalation and an opt-out clause, to make saving for retirement easier and more flexible.
Pension expert Keith Ambachtsheer, who recently published a report on a supplemental pension plan proposal, said Connor's approach is realistic and based on good public policy.
"(Connor) acknowledges we need a government initiative to get these people to start being members of pension plans and to start modestly saving, then escalating that over time, we can't sit back and just hope that will happen" he said.
Ambachtsheer said the Canada Pension Plan garnered a positive worldwide reputation after the government introduced significant reforms in the 1990s to fix problems with public delivery.
"That's global gold standard, and that required a lot of co-operation by a lot of people to get a sensible outcome, and we can do this again."
Ambachtsheer added that the private portion of the system has not been examined in 25 years, and the ministers' meeting is an opportunity to decide on principles for reform. For him, the key issues are providing full coverage at a low cost.
"A lot of these people that don't have a pension plan, they've got their RRSPs in retail mutual funds, they're paying two and a half per cent in fees, that's way too high...all the extra returns are being captured by the middle people," he said.
Connor's proposal calls for the government to continue its management of the Old Age Security and Canada/Quebec Pension Plans. But private providers would manage workplace plans, which, he said, would diversify oversight among several providers and investment managers.
"A government-run plan takes a long time to build, a long time to get launched. They cost a lot of money, compared to what's right in front of us, a private sector that competes with each other every day," he explained.
"It's a much more sensible route for the country to change these laws and unleash the power of competition."
He added that "a patchwork" of provincially-run systems, which have been suggested in Ontario, B.C. and Alberta, would not ensure coverage for all Canadians.
Connor said ministers should ensure the plan is doable on a timely basis, adding he believes amending legislation to allow for his proposed changes would take about a year.
"It feels like the stars are aligning for pension reform to move from discussion to action. Consensus is building around the need for change, and around many of the guiding principles," he said.
"Consensus has not yet formed on exactly the 'what' and 'how' of pension reform, but I'm hopeful that will come soon."