In November 2010, CARP issued a detailed pension submission to the Ministry of Finance, what follows is an executive summary of the positions taken in the submission. You may also read the full submission by clicking the link at the bottom of the page
Recent activity on the pension reform front is certainly encouraging, but reform must still move from general agreements and interprovincial discussions into the territory of real and meaningful policy change.
The core goal of any country’s pension system is to provide an adequate system available to the full breadth of the population that is sufficient to prevent poverty in old age. It must be affordable by the employers and employees and other participants and robust enough to withstand major shocks, including economic, demographic, and political volatility. Recent events have demonstrated that Canada’s retirement system is not meeting this goal in part because of inadequate pension coverage.
In recognition of the need for pension reform, the finance ministers, after their meeting in Prince Edward Island in June 2010, declared their intention to consider a modest enhancement of the CPP and to permit the private sector to “offer broad-based defined contribution pension arrangements to multiple employers, all employees and to the self employed”.
The proposed Canadian Pension Plan (CPP) expansion may prove helpful to many Canadians but the success of pension reform will depend on the magnitude and timeliness of the expansion and the adequacy of supplementary pension savings vehicles.
A gradual phasing in of increased benefits over decades will leave many older Canadians with insufficient retirement income. Given the expected modest level of CPP expansion proposed, supplementary pension plans will need to bridge the gap between the current retirement income available under the three pillars of Canada’s retirement system and the recommended level of pension adequacy, which is between 60 and 70 percent of pre-retirement income.
CARP’s principal focus with regard to the larger issues of pension plan coverage and savings adequacy has been on the 3.5 million middle income earners working for smaller employers and the 4.9 million earning less than $30,000 per year. This grouping of 8.4 million Canadians tends not to have occupational plans and is most at risk for retirement income inadequacy. This submission aims to establish that modest, phased in, CPP expansion must be complemented by universally accessible supplementary pension plans to help millions of Canadians reach retirement income security.
It will also speak to a number of questions raised by the Nova Scotia Consultation Document. The modest CPP expansion alone cannot achieve the goal of universal savings adequacy. Supplementary pension plans must be designed to maximize participation by employees, self-employed, and unemployed Canadians. Indeed, as the proposed model of supplementary plan is based on existing multi-employer plans, CARP strongly urges the adoption of a number of plan features that will serve to mitigate the risks often associated with large, privately administered, employer sponsored pension plans, while also addressing the broader economic and social implications of providing Canadians with new robust retirement savings vehicles.
I. CPP Expansion
1. CARP recommends that the CPP expansion be made at a level that will substantially improve on the adequacy of retirement income now provided by the CPP and that it be supplemented with both Pillar One and Pillar Three improvements to provide adequate levels of retirement income. CPP Expansion is a welcome advance in providing more income security on a universal, mandatory and defined benefit basis. However, the modest levels of increase proposed alone cannot provide the 60 – 70 percent that is considered the acceptable replacement rate for middle-income earners.
II. Proposed Supplementary Pension Plans
2. CARP recommends that proposed supplementary pension plans contain the features of a universal pension plan modeled on the CPP providing targeted or defined benefits with mandatory or auto-enrolment, utilizing the existing payroll deduction mechanism, professional management, a governance role for members, a mandate that is focused entirely on optimal performance and independence from government or any single employer.