Ontario to urge expansion of Canada Pension Plan
Published On Thu Jun 10 2010. Les Whittington Ottawa Bureau
OTTAWA—Ontario is breathing new life into the debate on major pension reform.
Three days before the opening of key talks in Prince Edward Island, the province is urging all governments to agree to a modest expansion of the Canada Pension Plan.
In a letter to his provincial and federal counterparts, Finance Minister Dwight Duncan says CPP expansion should be accompanied by new rules to let financial institutions offer more low-cost, portable, retirement-savings plans.
Duncan says he believes this two-pronged approach could be the basis for a national consensus and concrete action. He rejects the idea of a voluntary supplement to the CPP, arguing that it’s wrong to set up a new structure when the private sector is better equipped to handle savings programs.
Meanwhile, a TD Bank study released Wednesday says Canadian retirees in growing numbers will face a decline in their standard of living unless governments move to improve the pension system.
More and more Canadians will not have an “adequate” income level in retirement, resulting in a lower standard of living for many seniors over the next four decades, the bank says.
TD Bank chief economist Craig Alexander says Canada’s retirement income programs have so far met their primary objective, which is to alleviate poverty among seniors.
But the retirement income system is increasingly falling short in helping individuals accumulate sufficient assets during their working careers to maintain their standard of living in retirement, the bank calculates.
While the benchmark for “adequate” replacement income is debated, the report bases its conclusions on the most common recommendation of 60 to 70 per cent of pre-retirement earnings.
“Future retirees will face a far different scenario from today,” Alexander says. “A number of factors including the decline in personal savings rates, rising household debt levels, volatility in asset markets and declining employer pension coverage will negatively impact many seniors’ lifestyle.
“Policymakers must act now to mitigate future risks,” he said.
In coming years, the share of retirees failing to meet the desired savings for 70 per cent income replacement is projected to rise from 15 per cent for those born in the 1940s to just over 24 per cent for those born in the 1980s, the report says.
And the findings show that a disproportionate number of middle-income Canadians will end up in this group of 24 per cent who face a declining standard of living when retired.
In fact, middle-income earners represent the largest growing group of Canadians at risk: 10 per cent of middle-income earners born in the 1940s look to fall short, but approximately 25 per cent of middle-income earners born in the 1980s could be affected, the bank says.
Governments need to upgrade financial literacy, improve RRSP rules for employees who do not benefit from generous employee retirement plans and modify regulations to ensure the viability of pension plans, TD says.
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