In search of a pension miracle

Posted on March 30, 2009 in Debates, Governance Debates, Social Security Debates – Opinion/Editorial – In search of a pension miracle
March 30, 2009

With so many blue chip companies now in the red, the economic crisis has laid bare the cracks in our pension system: unfunded liabilities, an underfunded protection plan in Ontario, and unavailability of workplace pensions for two-thirds of workers.

Now, a flurry of government consultations are under way or in hand to help point the way to reform.

Last week’s provincial budget proposed letting retirement-age workers keep working while collecting their pensions. It’s a stark admission that in these tough times, inadequate pensions are prompting workers to postpone retirement.

The budget also disclosed that Ontario is taking a closer look at the Pension Benefits Guarantee Fund. This obscure entity backstops private pensions that go bust, yet it offers little peace of mind. Payouts are still capped at only $1,000 a month – unchanged since the fund was set up 29 years ago. And the fund is so overstretched it couldn’t cope if a string of bankruptcies shortchanged pensioners.

Ontario Finance Minister Dwight Duncan announced greater scrutiny of the fund’s financial health (it has a $100 million deficit), actuarial obligations and future role, so that it can properly live up to its namesake as a guarantor. That means making it self-financing and independent from government. It should also set a more realistic cap of $2,500 on monthly payouts for failed pensions, as recommended by a recent report from the Expert Commission on Pensions headed by Harry Arthurs.

Ontario is also planning a new Pension Reform Advisory Council to help guide the next stage. And the federal government is now holding its own cross-country hearings as it tries to shore up private pension plans regulated by Ottawa.

Late last year, Ottawa and Queen’s Park gave private pension funds more time to rebuild their balance sheets after recent stock market setbacks. The time frame was lengthened from five years to 10, under certain conditions.

But flawed pensions plans are only part of the problem. The entire system is out of balance when only one out of three Ontarians enjoys a workplace pension – an embarrassment that predates the current crisis. Only one in five private sector workers still has access to a “defined benefit” plan that supposedly guarantees a specified payout – provided their employer doesn’t go bankrupt.

If existing pension promises can’t be counted on, an emerging consensus among analysts suggests a greater role for the Canada Pension Plan by letting all workers contribute to a second tier “CPP-Plus” that would go beyond their basic CPP pensions. Over time, workplace pensions – which are increasingly on life support or limited to being glorified savings plans – would gravitate to the CPP, which offers tremendous economies of scale and risk diversification.

With the percentage of Canadians older than 65 set to double to 25 per cent by 2031, the need for reform is pressing. The federal Conservatives wrap up their consultations next month and report to Parliament in June. With public confidence at risk, this is the time for a federal-provincial summit to reinvent our pension system. The creation of the CPP in the 1960s was a political miracle. We need another one.


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