Originally published in the Financial Post on February 11th, 2010. To go to the Financial Post website, please click here.
For the most part, Canada’s retirement gurus approve of the CD Howe recommendations to bring RRSP and Defined Contribution pensions into parity with the Defined Benefit pensions enjoyed by politicians and civil servants.
Here, unaltered, is an email from Mercer’s actuary Malcolm Hamilton [pictured.] Below is further input from CARP vice president of advocacy Susan Eng. To make clear their authorship, I’ve once again italicized their words. They begin across from their respective photographs:
The C.D. Howe Backgrounder reminds us that there are many changes to the Income Tax Act that would improve our retirement system. These should not be delayed until every other aspect of the pension system has been addressed.
There is a growing gap between retirement savings in the public sector and retirement savings in the private sector. By my reckoning the average private sector employee has about one third of the savings of the average public sector employee. This is neither healthy nor fair. The gap is partially attributable to the Income Tax Act, which was reformed in the 1990s to level the playing field…yet 20 years later the anti-RRSP bias is evident and growing. A number of recent changes are likely to magnify, not diminish, the differences (phased retirement and income splitting to name two).
If there is a justification for allowing federal public servants to participate in a pension plan worth 34% of pay while restricting 80% of the private sector (those without DB pensions) to RRSPs with an 18% limit, I have yet to see it and can’t imagine what it would be. Personally, I don’t think that people need to save 34% of pay, but a country that can afford rich pensions for federal employees should be prepared to let others decide for themselves whether they want to contribute 34% of pay to an RRSP so they can retire in their 50s with large, safe, indexed pensions.
Finally, while fixing the Income Tax Act is undeniably important, no one should imagine that this is all we need to do. Middle class Canadians don’t need higher RRSP or pension limits – they already have more RRSP room than money. They need better advice about managing their debts and setting reasonable retirement goals. They need plans with smart default options and low fees, so even the disinterested make good decisions. Our system is unlikely to spontaneously heal itself. We need a catalyst.
CARP’s Eng: Proposals “nice” but still need for comprehensive reform
CARP’s vice president of advocacy Susan Eng [pictured right] is also supportive but still thinks the country needs more than tweaks but “comprehensive reform” like CARP’s own proposal for a Universal Pension Plan.
Overall, all the proposed changes are nice to have but they continue to ignore the need for comprehensive pension reform. Tinkering around the edges is no substitute but people will be encouraged that the public scrutiny on retirement insecurity has prompted good ideas to come forward. I just hope they do not “exhaust the field” leaving the major gaps unfilled.