Canadians not saving enough to retire
TheStar.com – Investing – Canadians not saving enough to retire: Without major reforms, even people with RRSPs, company pension plans are likely to feel squeeze
September 17, 2009. Heather Scoffield, The CANADIAN PRESS
OTTAWA–The pension system must be reformed quickly because Canadians are not saving enough to maintain their standard of living in retirement, the head of the Canada Pension Plan Investment Board says.
“Clearly, the current system isn’t working as anticipated,” David Denison, president and chief executive of the board, said in a speech that broke his silence on the need for reform.
The Canada Pension Plan is on solid footing, he said, but it provides retirees with only about 25 per cent of their pre-retirement income, or about $11,000 a year in today’s terms. Even though retirees rely on government benefits, company pensions and their own personal savings to make up the rest of their income, those are no longer sufficient, Denison said.
“They’re just not creating the amount of retirement savings which will lead to sufficient income across Canada’s population in their retirement years,” he told reporters.
“That’s why we think a fundamental rethinking of how those operate is important.”
RRSP and corporate pension plans have been badly damaged by the financial crisis, he noted. Also, 11 million Canadians do not have any company pension plan coverage.
He suggested that federal and provincial policy-makers consider developing a new pension regime that would require all companies and employees with no company plan to pay into a fund.
The fund could be regional or national, but national would be preferable since it would make the pension benefits more mobile. Employees could opt out.
Policy-makers also should consider using the existing CPP structure to add a supplemental fund for those who want to boost their government pension benefits, Denison said.
Several experts have already proposed these two options, but Denison suggested a hybrid of the two would be better than either solution alone. Companies would still have the flexibility to tailor their own pension funds, but at the same time, contributors could take advantage of the federal investment board’s huge staff, low administration costs and widely respected minimal-risk model.
Denison said it is estimated that a private insurer would have to charge 11 per cent of pay to provide a pension equal to what CPP provides, along with disability and other benefits, for 9.9 per cent of pay. “The cost advantage of a pure, pension-supplementary layer would be even greater.”
Provincial and federal finance ministers are to meet in Whitehorse in December to address improving the minimum level of retirement benefits for all. Ottawa has set up a group to study options.
Joel Harden, the Canadian Labour Congress pension expert, said it is a relief to see Denison, one of Canada’s most important pension players, get involved and stress the urgency of the debate.
“I think everyone agrees now that the floor (of retirement benefits) is way too low,” he said.
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