That’s why the Canadian Labour Congress is keen on expanding the one defined-benefit plan all workers already have — CPP. The labour group thinks the plan should replace 50% of working incomes rather than the 25% it was designed for. To do so, it suggests raising combined worker/employer contributions to 15.6% from the current 9.9% of the first $47,200 of annual worker earnings.
Ambachtsheer prefers a middle way: Applying the 9.9% to a larger base of $94,900, thereby helping middle-income earners. His Canada Supplementary Pension Plan, or CSPP, would be a personal pension account like a group RRSP, but flexible enough to spin out annuity-like income in retirement. Unlike the existing CPP, however, participants could also choose to pass to their heirs some accumulated capital.
For its part, CARP, Canada’s association for the 50-plus, proposes a supplementary universal pension plan with payroll deductions and professional management. It would not be a plan subject to market vagaries, but “a target benefit plan like the CPP, but not necessarily part of the CPP,” says vice-president of advocacy Susan Eng.” Participation would be mandatory.
Hamilton favours a “modest expansion” to CPP to compensate for the gradual decline of corporate defined-benefit plans. In order not to burden future generations, he thinks it should be fully funded — all liabilities covered in advance by contributions and investment growth — with benefit increases phased in over 40 years. Such an expanded CPP could be supplemented by a voluntary DC plan like the CSPP or similar proposals.
Less revolutionary is the C.D. Howe Institute’s suggestion to tweak RRSP rules to bring them up to levels politicians and civil servants enjoy. Using the benchmark of federal public service pensions, RRSP limits would rise to 34% of earned income from 18%, with maximum contributions rising to $34,000 from $22,000.
“It makes sense to narrow this gap,” Hamilton says, pointing to the discrepancy between Ottawa saying it can afford to give itself rich pensions but its unwillingness to let ordinary Canadians save nearly as much in RRSPs.
In Ottawa this week, BMO’s Tina Di Vito, director of retirement strategies, and Deloitte managing partner Andrew Dunn both suggested Canadians could save more in RRSPs if dividends and capital gains were allowed to retain their favourable tax treatment when withdrawn from the plans. Also, minimum RRIF withdrawals designed when interest rates were higher should be lowered so as to minimize the chance of running out of money in advanced old age.
Keywords: pension reform
