All the right moves needed to expand pension coverage

TheStar.com – Business – All the right moves needed to expand pension coverage
Published On Sat Nov 21 2009   By James Daw Personal Finance Columnist

Broad public support will be required to ensure Canada makes the right moves to expand pension coverage while the shortfall in retirement income is such a hot topic.

The question is whether politicians will hear from many of the potential 3.5 million middle-income workers whom pension expert Keith Ambachtsheer thinks would benefit most from having government leaders nudge them into one or more new, large-scale pension plans.

These voters could certainly make a big impression if they all wrote to say “nudge me, nudge me” before the country’s ministers of finance meet in Whitehorse late in December.

Unfortunately, the dim view that Ambachtsheer – director of the Rotman International Centre for Pension Management at the University of Toronto – has of their ability and willpower when it comes to saving and investing for retirement could apply equally to the likelihood of a majority rallying to champion a component of his vision of a new, so-called Pensioncare system for Canada.

“Most people are not capable of solving complex mathematical problems (or) dealing with future uncertainties such as their work-income trajectory over future decades,” he argued Wednesday before the erudite benefactors of the Toronto think-tank, the C.D. Howe Institute.

“Even if they could, we know from observation that most people do not possess the willpower to see the resulting savings plan through to an implementation period of 30 or 40 years. (And) they could still be easily stumped by the technically and emotionally challenging investment part.”

Piggybacking on the ideas of various others here and abroad, Ambachtsheer has become a leading champion of Canada establishing one or more contributory pension plans to supplement the Canada Pension Plan, Old Age Security and Guaranteed Income Supplement.

It’s an idea that will do nothing for current retirees, and would help older workers less than the younger workers who do not have an employer-sponsored pension plan simply because they have fewer years to save.

But younger workers would benefit more for another reason: Ambachtsheer’s plan for those with incomes between $30,000 and $120,000 would not guarantee a certain level of income to their elders.

He proposes that the plan should target topping up CPP and OAS benefits to provide a person a total pension income equivalent to 60 per cent of his or her pre-retirement earnings from age 65 until death.

But, at times like this when investment returns are not sufficient, the participants heading into retirement would have to accept either a reduced income or work later in life.

There would be no having the younger workers pick up the slack, which they might welcome. They would already carry the bulk of the burden for paying CPP, OAS and GIS benefits.

Ambachtsheer argues the $30,000-to-$120,000 income group is most in need of a large-scale, efficient and low-cost pension plan because they will not be happy with state-provided pensions alone.

In addition, the cost and complexity of retail investment products combined with a general lack of expertise will prevent most from saving enough on their own to get anything close to what a company pension, let alone a pension for public-sector employees, would provide.

Ambachtsheer hopes B.C. Premier Gordon Campbell’s promise to establish a supplemental pension plan has lit a spark under other political leaders similar to what Tommy Douglas did by starting Medicare in Saskatchewan.

But enough votes will have to exceed his confidence in their ability to look and plan ahead and make their voices heard. For their own sake, I hope they do.

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