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Promoting adequate retirement savings for all: A plea for a national DC plan

Posted by on Dec 1, 2008 in Employee Benefit News, Retirement | 0 comments

By: Sheryl Smolkin

Read this article and comments at HRInsider.ca 

 Every time over the past few years that a Canadian jurisdiction has grafted yet another set of amendments onto their pension standards legislation, it has occurred to me that we might be better off if we could junk the current system and start again with a single pension statute instead of many.

Therefore, when I heard recently that B.C. Premier Gordon Campbell has announced the province intends to create a privately financed defined contribution plan that will be available to employers, employees and self-employed people on a voluntary basis, I couldn’t help remembering what Keith Ambachtsheer said when I interviewed him earlier this year:

“If these politicians truly looked at the public interest, they would create a national program.”

In a study published as part of the C.D. Howe’s pension papers that built on previous research, Ambachtsheer identified both the lack of workplace pension coverage for 3.5 million Canadians and the high cost of retail products, in which 5.5 million Canadians invest, as major impediments to accumulation of adequate retirement savings.

He offered both a vision and a plan to establish the Canadian Supplementary Pension Plan that would provide a decent post-work standard of living for the millions of Canadian workers currently accumulating insufficient retirement savings.

As a basis for further study, the report suggests a DC program with the following key features:

  • Auto-enrollment of all noncovered workers in the CSPP.
  • Use of the CPP/QPP payroll deduction mechanism.
  • Operates within the existing tax and regulatory regime for pensions.
  • Targets a 60% post-work replacement ratio.
  • Sets an earnings floor and ceiling for CSPP deductions.
  • Sets an automatic default CSPP contribution rate – for example, 10% of earnings – with contributions of lower-wage earners going into a tax-free savings account.
  • An opt-out option for both employers and employees in regards to the automatic default contribution mechanism.
  • An opt-in mechanism so where employers or employees opt out, they can still use the program to accumulate personal savings within the current tax structure.
  • An RRSP asset transfer option.
  • A number of annuitization options with an “autopilot” deferred annuity purchase initiated for each participant at age 45 (individual can select earlier or later age) with a target of annuitizing 50% of accumulated participant assets at age 65.

Ambachtsheer also calls for the CSPP to operate as an expert, high-performance financial institution at arms length from government, similar to the CPP Investment Board.

His study has been widely circulated and promoted in submissions to expert panels in Ontario, B.C., Alberta and Nova Scotia examining current pension standards legislation. Both Campbell’s announcement and a recommendation for a similar provincial program contained in a draft report released for further comment by the Nova Scotia Expert Pension Committee reveal that the general idea is gaining traction.

But the problem is that if provincial group retirement savings vehicles are created, we risk yet another layer of fractured fiefdoms with inconsistent programs that will not serve the best interests of either employers or their employees.

Because each province has unique priorities, different legislative calendars and a distinctive style of legislative drafting, it is certain that no two statutes would be identical, or available as of the same effective date. And inevitably there would be “have” and “have not” provinces.

Employers carrying on business in multiple jurisdictions would have little incentive to opt into provincial programs if those programs do not allow them to easily deliver consistent benefits for all of their employees. Lack of mobility options could create similar impediments for members.

Further, instead of creating one infrastructure to administer a single, new program and invest employer/employee contributions, up to 10 or more bureaucracies would be required – certainly undermining any economies of scale.

In the same week the CSPP paper was released, C.D. Howe pension panel co-chair Claude Lamoureux spoke to the Economic Club of Toronto in his capacity as a special advisor to the Canadian Institute of Actuaries.

While primarily advocating for an environment conducive to defined benefit pension plans, he acknowledged Ambachtsheer’s work and called for a national pension reform summit to stimulate the positive appetite for much-needed pension reforms among the ranks of government officials, cabinets and caucuses.

No one who has tracked the gut-wrenching impact of global stock market gyrations on their retirement savings this fall can deny the need for a cost-effective, well-managed national pension plan accessible to all.

We have a once-in-a-lifetime opportunity to create a brand new program from the ground up and to do it right. Stakeholders must impress upon federal and provincial politicians that by taking off their partisan hats and overcoming constitutional challenges, they can create a unique legacy that will benefit constituents and their families for generations to come.

We have a once-in-a-lifetime opportunity to create a brand new program from the ground up and to do it right.

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