Originally published in the Financial Post on February 11th, 2010. To go to the Financial Post website, please click here.
OTTAWA — Ottawa needs to break the deadlock in reforming the pension system by taking some first steps in next month’s budget, says a new report.
Provinces, lobby groups and others all agree Canadians aren’t saving enough for retirement but the debate over what to do has stalled, says the report from the C.D. Howe Institute.
Instead of focusing on how to prevent the erosion of defined benefit plans, Ottawa should start with easier reforms to make the existing system more efficient, says William Robson, president of the Toronto-based think-tank.
“In its 2010 budget, the federal government can take some straightforward steps to break the … mental deadlock,” Robson says in a paper released Thursday.
“The 2010 federal budget could contain some straightforward steps to promote more tax-deferred saving, make good retirement saving plans accessible to more Canadians, and liberalize the rules governing retirement income – all no-regret steps toward larger, better third-pillar pensions.”
He suggests giving savers more room in their registered retirement savings plans, or RRSPs, and their defined-contribution plans.
Robson proposes raising the age when people need to stop contributing to tax-deferred savings to 73 from 71. He also suggests aligning the rules for Retirement Income Funds and Life Income Funds to rules for annuities from pension plans.
And he wants to see an end to the tax disadvantages of group RRSPs.
Federal and provincial governments have been discussing for months how best to proceed with pension reform. In December, the governments agreed to narrow their options by this May after national public consultations.
But plans for consultations are still up in the air. And many observers believe Ottawa may have lost its resolve to move forward, despite mounting pressure from seniors’ groups, organized labour, provincial governments and federal opposition parties.
Most of those groups favour using the Canada Pension Plan as a base to increase retirement benefits for Canadians on either a mandatory or voluntary basis. Ottawa also wants to consider private-sector solutions that would be led by financial institutions.
But the changes Robson suggests wouldn’t need to touch the CPP and could be done quickly and at almost no cost, he said in an interview.
Raising the limit on RRSP contributions would be controversial, he acknowledged, since it could be viewed as pandering to the rich. But the other suggestions would be easy to do.
“I’m quite optimistic that some of this is going to be in the budget.”
One of the country’s largest retirees’ groups, CARP, hopes he’s right. But it also calls the proposals mere “tinkering.”
“It doesn’t replace the essential need for there to be wholesale changes,” said Susan Eng, CARP’s vice-president of policy.
She wants to see Ottawa signal its resolve to bolster the pension system in the throne speech that comes just before the budget at the beginning of March.
Keywords: budget, RRSP, pension reform