Whether the CPP could simply be enhanced to provide broader coverage depends on the agreement of two-thirds of the provinces representing two-thirds of the Canadian population.
All three provincial reports recommended some form of a universal pension plan but the federal consultation document alludes to supporting multi-employer plans which does not move much closer to the universal model.
These recommendations draw heavily on the report of the CD Howe Institute recommending a Canada Supplementary Pension Plan .
The details of such a Universal Pension Plan remain to be determined including:
• Whether it should be a defined benefit or defined contribution plan – the most important distinction being whether the fund [sponsor] or the employee [member] bears the market risk which has special resonance in the current climate
• The degree of mandatory enrolment – should there be opt-out provisions – while noting that plan sponsors facing financial hardship would opt out of a non-mandatory plan
• Level of coverage – i.e. to fully or partially cover that gap between CPP coverage and the estimated requirement for a secure retirement – 60% – 70% of pre-retirement income balanced against affordability
• Provision for low income workers who cannot afford the premiums
• Whether it should operate at arms length from government
• What performance measures should be set, including the administrative cost-to-asset ratio.
The model of the CPP recommends itself certainly given its recent performance in the face of bad news all around. Their third quarter results were released today and showed decline for the quarter ending December 2008 of 6.7 per cent which is stellar compared to the sharp declines as high as 23% in public equity markets and the performance of major Canadian pension funds.
On the basis of the information provided, the CPP Fund appears to have experienced a loss of about 7.2% of its assets during the last quarter of 2008 due to the economic crisis. This favourably compares to the 15% to 20% loss sustained by most private plans.
As David Denison, President and CEO, CPP Investment Board noted, the CCPIB is “not forced to sell assets in these market conditions to pay current benefits” which is a genuine advantage that few, if any, other private plans have. CPP cash flows are projected to be positive for about another 10 years.
Another important aspect is the large stream of contributions which help to improve results and speaks in favour of very broadly based, large funds with mandatory contributions.
CARP is recommending
• A Universal Pension Plan as an important vehicle to improve the retirement security of all Canadians
• That the First Minsters and Finance Ministers hold a Pension Summit at which knowledgeable representatives of those most affected – plan members, retirees and pre-retirees – have a seat at the table.
CARP has raised retirement security issues in our various news releases and open letters to the Ministers. Click here to view a copy of our November 6th 2008 open letter
