FOR IMMEDIATE RELEASE
December 16, 2010
CARP Welcomes Progress on Pension Reform – Need clear protections for investors in private-only option
TORONTO, ON: CARP welcomes the progress on pension reform announced by Finance Minister Jim Flaherty in advance of the December 20th meeting of Canada’s finance ministers in Kananaskis but calls on all finance ministers to stipulate adequate protections for investors in any such private sector run Pooled Registered Pension Plans (PRPPs).
CARP has consistently called for government action to address the retirement security of Canadians. The finance ministers finally acknowledged after their June 2010 meeting in PEI that Canada’s pension system needed reform because Canadians without workplace pensions were not saving enough for their own retirement and lacked a broadly based, affordable and sustainable retirement savings vehicle to do so.
The finance ministers announced after their PEI meeting that they were considering modest CPP enhancements and would look for ways to facilitate private sector innovation to provide multi-employer pension plans. At the time, they ruled out a public option such as a supplementary CPP.
In the months since PEI, there has been little public comment from the finance ministers except to dampen expectations on CPP enhancements. Governments issued consultation documents soliciting expert and citizen input on the PEI announcements. CARP submitted responses to both the Nova Scotia and Ontario governments, supporting a modest CPP enhancement, and Pillar Three [private savings] changes to provide: savings adequacy, universal coverage, sustainability and cost containment.
“CARP members will welcome any action that improves on the status quo – which has left many of them with financial insecurity as they face retirement – for their children as well as themselves. However, they have always favoured a public option to avoid the high costs and lack of accountability in private offerings. Since the proposal rules out a public option, and call for a Defined Contribution approach, CARP will be looking for legislated protections to ensure affordability, benefit adequacy, portability, fiduciary responsibilities, and proper risk management to ensure sustainability”, said Susan Eng, VP Advocacy for CARP.
Canadians now contribute about $40 Billion to their RRSPs but that still leaves an estimated $80 billion in RRSP “tax-deferral room” that has not been taken up. The proposal contemplates tax rule changes to include contributions to the new PRPPs in the category of deductible pension contributions. The potential business for the private sector administrators of the new PRPPs is enormous.
“This could be a major wind fall for the banks and insurance firms, so called “regulated financial institutions” which will get monopoly access to a major source of new business – so this is the time to stipulate conditions such as regulated fee caps or limitations on risk taking with retirement funds – and all the more reason for the stakeholders that will be consulted on the proposals to include knowledgeable representatives of retirees”, added Eng.
The vast majority of CARP members responding to a recent CARP ActionOnline Poll [issued December 10th] say they do not trust the private sector to deliver safe, low-cost, high-return plans (83%) and one third say they do not trust the private sector “at all” (32%). This sentiment reflects those expressed in online comments to the media reports.