December 10, 2010 – A few years ago it would have been considerably more difficult to find private sector industries calling for pension reform. Pressures on the insurance and banking industries caused by the recession, coupled with and a healthy dose of self-interest, however, have brought unlikely players to the pension reform table.
Earlier this year, the Canada Life and Health Insurance Association (CLHIA) made a submission to the Standing Senate Committee on Banking, Trade, and Commerce, detailing a number of recommendations that would ostensibly help Canadians save better and more for retirement.
The CLHIA is a voluntary association whose member companies account for 99 per cent of Canada’s life and health insurance business. Over two-thirds of Canada’s pension plans, primarily Defined Contribution (DC) plans, are administered by Canada’s life and health insurance industry. CLHIA members administer over 8.5 million retirement arrangements for individual Canadians. The industry provides a variety of financial services, life insurance, annuities and supplementary health insurance to about 26 million Canadians.
The submission focuses on improving existing savings vehicles coupled with financial literacy. Naturally, as industry representatives, the CLHIA has an interest in maintaining commercially available financial products, but the submission does offer suggestions on how current products and practices might be improved.
1. Enhancing Individual Savings The CLHIA believes that the age at which mandatory RRSPs withdrawals must be made should be extended from 71 to 73. In the UK, they argue, pensions don’t have to be taken until the individual reaches 75.
2. Enhancing Group Savings
The CLHIA proposes that every workplace with 20 or more employees be required to offer a group RRSP, DC-MEPP, or some similar arrangement. This, they argue, would expand access to cost-effective savings plans to about 80% of Canadian workers.
3. Tax-free Savings Account
The Income Tax Act requires that TFSAs be portable between financial institutions upon request. The CLHIA argues, however, that this portability may not always be to a consumer’s advantage. “For instance, if a consumer wished to use his or her TFSA room to invest in long-term products, insurance companies could offer guaranteed, lifelong incomes that significantly exceed the income payable under a liquid arrangement. By foregoing the right to transfer the plan between providers, and any right of a survivor to a residual payment, an individual could increase the guaranteed benefits payable during his or her life by as much as 35 per cent – a significant advantage.”
Finally, the CLHIA writes, “the insurance industry fully supports the objectives and direction of the Task Force on Financial Literacy. In particular, the Task Force recognizes the importance of strengthening Canadians’ retirement planning skills. We support this emphasis and believe that there need to be opportunities to enhance communication around the importance of saving for retirement — particularly to younger Canadians who have the time ahead of them to establish lifelong strategies to prepare for a financially secure future.”
The CLHIA submission does not line up with CARP’s long held position on a universal, Defined Benefit pension plan, but the suggestions largely aim in the right direction in acknowledging the need to save and calling for some form of mandatory savings. Most importantly, however, even the banking and insurance industries recognize the need to update an increasingly obsolete way of saving for retirement, and offer improved savings vehicles even if their recommendations don’t go far enough.
To read the full CLHIA submission, click here