Canada Launches Pension Consultations
Finance Minister Jim Flaherty wants to hear Canadians' views on whether the country's retirement income system needs to be improved, and, if so, how that should be done.There are already views on how to bolster the Canadian pension system. Some feel that pension reform should enhance private options for saving while others feel that it's time we enhance public pensions.
Flaherty announced plans Wednesday for a series of public town hall meetings, roundtables and online consultations over the next five weeks.
The town hall meetings will be held in Charlottetown, Quebec City and Richmond, B.C. Discussions with stakeholders, experts and government representatives will take place in St. John’s, Winnipeg and London, Ont.
The online consultation process runs until April 30. The government wants feedback in time for a meeting of federal and provincial finance ministers in May, which will tackle a number of reform options.
The government has faced mounting pressure to act quickly on the pension issue, but Flaherty said the retirement income system's challenges are complex so reforms shouldn't be rushed.
"Retirement savings issues are too important to Canadians for governments to meddle blindly or rashly," he said.
"Changes to the system could carry unanticipated consequences. There's simply too much at stake for ill-considered action."
But federal NDP Leader Jack Layton said it was "disappointing" that Flaherty was not taking any immediate action on pension reforms.
"It's simply further consultation and a very limited one at that," he said.
Layton noted that the House of Commons voted nine months ago to support a motion that would boost retirement benefits, and provide protection for workers whose pensions are at risk because their companies have gone bankrupt.
Even among those who favour a more cautious approach, Ottawa has faced pressure to move immediately to amend the Bankruptcy Act, to ensure that pension assets are protected against being lost when companies go bankrupt, as happened with the high-profile insolvencies of Nortel and Canwest in 2009.
"Yes, the government is working on that," Flaherty told Evan Solomon on the CBC's Power and Politics show on Wednesday. "But it's not a simple issue, because if you start giving preference in certain situations, you can discourage lending and might be deterring growth," he said.
Concerns over the adequacy of the current pension system have been growing in recent years. About two-thirds of Canadians are not covered by company pension plans. Surveys also suggest that about a third of Canadian families have no retirement savings at all and many others worry that they're not saving enough.
Last week, an analysis by the C.D. Howe Institute said most Canadians underestimate the amount they need to save for retirement. Its study said people need to save between 10 and 21 per cent of their pre-tax income for 35 years to get a retirement income at age 65 that would provide 70 per cent of their pre-retirement income.
While the Canada Pension Plan is actuarially sound for the next 75 years, the program is designed to replace just 25 per cent of the average working wage. It pays maximum retirement benefits of $934 a month.
Some, like the NDP, have suggested that the CPP system be beefed up to provide benefits that would approximate 50 per cent of the average working wage. That would require higher mandatory contributions.
British Columbia and Alberta have been pressing for a system that would allow Canadians to voluntarily contribute more to the CPP. They've said they may set up their own voluntary pension supplement program if Ottawa doesn't lead the way.
Flaherty dismissed that possibility, saying both provinces have since released it would be unwise to go it alone on the issue.
"They were at one point but quite frankly they realized this is not simple," Flaherty said. "You don't do this on the back of an envelope, because if you make a mistake you're visiting that mistake for the next 30 or 40 years."
Others would like to see a greater role for the private sector to manage retirement savings for the large numbers of Canadians who have no company-sponsored pension plan. Even some with corporate pension plans are worried because the plans are severely underfunded after having taken a major hit during the 2008 market downturn. There have also been suggestions to boost the age at which people qualify for CPP or Old Age Security.
Many don't contribute to RRSPs
About 60 per cent of families have registered retirement savings plans, but figures show many don't contribute every year and the median value was only $25,000 as of 2006. About 6.2 million Canadians put money into an RRSP in 2008.
The view that Canada's retirement income system needs a complete overhaul is not unanimous. Some pension experts say only minor tweaks are needed and don't see an urgent problem.
Flaherty said Canada's existing retirement income system is considered to be one of the strongest in the world.
"We fully intend to ensure that it stays that way," he said. "But we look forward to listening to Canadians about possible improvements in the system."
Last year, Canadians were asked for reform ideas for federally regulated private pensions. Most company pensions, however, are provincially regulated.
The government said the round of consultations announced Wednesday is meant to address the broader issue of retirement income adequacy.
You can watch a series of CTV interviews on this issue by clicking here. I would bring your attention to Susan Eng's interview on CTV as well as her interview on BNN. Susan is the VP Advocacy at CARP, a group for Canadians over the age of 50.
Finally, this morning I was invited to speak at the Standing Senate Committee on Banking, Trade and Commerce on April 22nd to share my thoughts on how we can bolster our pension system. I look forward to sharing my thoughts with this committee as a follow-up to my testimony at Parliament Hill last April.
I also invite all my readers to share their thoughts on this important matter. Individuals interested in participating in the online consultations are invited to do so through the following link to the Department of Finance website: www.fin.gc.ca/activty/consult/retirement-eng.asp.