In a nutshell
This is an agreement to do nothing, except perhaps a handout to the financial services industry at the expense of the average Canadian. By taking advantage of their inertia, this guarantees more fees to the industry, but doesn’t solve the “systemic failure” of Canada’s pension system.
Real pension reform must address at least:
1. The inadequate saving for retirement by Canadians- by requiring that plan be offered abut requiring those who do not wish to participate to opt out (auto-enroll), ensures that those inclined to inertia will become the victims of the financial services industry’s ravenous fees. Auto-enroll, a potentially healthy approach, is turned into a vehicle to channel assets into likely less than optimal returns.
2. Low-cost retirement portfolios- by forcing retirement assets into funds run by Canadian financial industry known for corrosive fees will guarantee that an inadequate share of the available market returns will end up in retirees’ portfolios.
3. Low-cost longevity insurance option to deal with longevity risk and provide lifetime income, and low-cost decumulation strategies – not addressed
4. The crisis facing those who earned their private sector pensions but their plan sponsors has gone bankrupt and lost much of their pensions while the government stood by and did nothing to protect them before/during/after bankruptcy
Based on the little information available at this time, the best that can be said is that it failed on all of the above four criteria. No compulsion or incentives to save, except compulsion to invest savings in products of an industry famous for its greed, and no mechanisms to manage longevity risk. And not even a mention on protecting the earned benefits of private sector pension beneficiaries in case of sponsor bankruptcy. The best assessment that can be offered of this plan is an F!
Peter Benedek is a pension activist authors the pro-bono website www.retirementaction.com whose mission is to create an independent network for retirement finance education and advocacy. Topics cover all phases of an individual’s life-cycle from pre-retirement planning to transitioning into retirement and being retirement. He aims to help individuals achieve their retirement objectives as well as advocate for public policy changes that will enhance retirement security. He is a retired Nortel engineer, manager and telecommunications R&D executive. Since he retired he has become a Chartered Financial Analyst. In addition to authoring the website, he also provides research and consulting services to investment management firms.
Keywords:PRPP, pension reform, retirement