The over-50 lobby group known as CARP today told the government it should consider establishing a Universal Pension Plan modelled on the CPP, with mandatory enrolment, a payroll deduction mechanism and a performance-oriented mandate that is independent from government or any single employer.
Speaking in Ottawa this morning before the House of Commons Standing Committee on Finance, CARP vice president of advocacy Susan Eng said the economic crisis has hit retirees especially hard and that “the current pension system fails to adequately provide for our retirement security.” While those fortunate enough to have RRSPs or employer-sponsored Defined Contribution plans have seen their retirement savings evaporate, almost 30% of Canadian families don’t have any retirement savings at all, Eng said.
CARP released a poll of 3,700 of its members and found “overwhelming support for a universal pension plan” for the roughly one in three Canadians without retirement savings. CARP is also calling for a Pension Summit that would include First Ministers and Finance Ministers. Pension reform can no longer be the “quiet preserve of pension experts,” Eng said, “Canadians are looking to all levels of government for bold leadership to ensure hat protection of their retirement security remain the top public policy priority.”
CARP cites a C.D. Howe Institute estimate that 3.5 million Canadian workers — or 25% of the workforce, mostly middle-income, working for smaller employers — are most likely to be on “an inadequate retirement savings track” and would thus benefit from access to a supplementary pension plan. C.D. Howe has suggested the creation of a new savings vehicle called the Canada Supplementary Pension Plan, or CSPP.
Features of a UPP
CARP says pension experts agree retirement income from all sources must replace between 60 and 70% of working income. Currently, the CPP provides at most 25% of Year’s Maximum Pensionable Earnings (YMPE): $46,300 in 2009. Thus, for those without employer-sponsored private pensions, the maximum CPP benefit this year is $10,905.
CARP suggests gradually phasing in a UPP so that coverage would eventually cover 70% of pre-retirement income to a maximum pensionable earning limit of $116,667 (which is the 2009 limit for Registered Pension Plans). Like the CPP, the UPP would be a mandatory enrolment plan. CARP is wary of any version that would let individuals “opt out.”
CARP has 330,000 members. In March, it made a joint submission on Private Pension Reform jointly with the Common Front for Retirement Security, which includes 21 organizations representing 2 million Canadians. CARP says there are 14.5 million Canadians 45 years of age or older, representing 42% of the total population. There are 4.6 millon Canadians over age 65, making up 13.3% of the population.
Canada’s savings shell game
Coincidentally, the Post’s lead editorial today (Tuesday) was entitled Canada’s savings shell game. It points out that workers who counted on the “pension promise” from long years at a single employer are in danger of being short-changed in the case of corporate bankruptcy. The more money you can put into an employer-sponsored pension, the less you can save in an RRSP. This is the Pension Adjustment, a number that appears on your T-4 slip and which you enter when you’re preparing your annual tax return. The one point not made by the editorial writer is that there may be recourse to a PAR, or Pension Adjustment Reversal but the problem there is you still need the money to make a giant catch-up RRSP contribution.