GETTING PERSONAL CANADA: Little Confidence In Pension System

Originally published in the Wall Street Journal on February 26th, 2010. To go to the Wall Street Journal website, please click here.

TORONTO (Dow Jones)–Most Canadians support some kind of pension reform as they become increasingly skeptical the current system will provide them with a comfortable income once they stop working. A recent survey by TSN Canadian Facts indicates 46% of Canadians over 50 aren’t confident the existing combination of employer pensions, the Canada Pension Plan, and registered retirement savings plans (RRSPs) will give them enough retirement income. A further 37% are only somewhat confident while just 15% are very confident.

Moreover, a strong majority — 67% — say the system doesn’t meet the needs of the average Canadian and should be reformed. While 47% believe some reform is necessary, 20% say extensive reform is needed. “Squarely two-thirds of people are saying reform is needed, there has to be changes,” says Norman Baillie-David, TSN Canadian Facts vice-president and member of its Finance Sector practice. “That, for me, shows there’s a tipping point.”

Among proposed reforms, 82% were in favor of giving seniors additional room in Tax Free Savings Accounts, which are currently capped at C$5,000 a year. A similar percentage were in favor of designating pension surpluses to individuals holding the plans, rather than to employers, while 80% believe self-employed Canadians should have the right to voluntarily supplement Canada Pension Plan contributions and benefits. Support is equally high for giving pensioners priority in bankruptcy proceedings. “Clearly, many Canadians are approaching their retirement years with considerable trepidation,” Baillie-David says. He notes there’s a lot of confusion about the Canada Pension Plan and what it provides retirees, and about how employer pensions fit in. A majority of those surveyed, for example, support having CPP funds protected from bankruptcy, even though that is a remote risk given its structure and funding status.

Calls for pension reform have been growing in recent months from groups like the Canadian Association for Retired Persons, which has proposed a Universal Pension Plan modeled on the CPP. The financial-market crash in 2008, which caused Canadian pension-plan assets to fall 15.9% in their worst year on record, the rapidly aging population, increased longevity, and falling RRSP contributions from the weak economy, have cut into disposable incomes, spurring calls for reform.

“Something has to be done,” agrees Bill Tufts, a benefits consultant from Hamilton, Ont. who runs a Web site called Fair Pensions For All. “People are just running hard to keep up with day-to-day expenses, and they don’t have a lot left over to put into those RRSPs,” he says. A recent Bank of Montreal (BMO) survey found one-third of Canadians don’t have an RRSP. But even among those who do, an overwhelming majority, or 80%, aren”t confident their RRSP investments will provide enough for their retirement.

Only about 27% of Canadian workers have a pension plan. While the CPP covers all working Canadians, it is designed to replace only 25% of a worker’s average lifetime earnings.

© The Wall Street Journal

Keywords: pension reform