Patchy pensions leave too many exposed

Posted on May 28, 2009 in Governance Debates, Social Security Debates – Opinion – Patchy pensions leave too many exposed
May 27, 2009.   Carol Goar

Fifty years ago, Canada had a half-built medicare system. It served those with private health insurance relatively well, but left a large swath of the population exposed to severe financial hardship if illness struck.

No one went bankrupt to get hospital care. In 1958, the federal government had implemented a national hospital insurance plan. But people still struggled to pay their doctors’ bills, or did without. They still went into debt to buy medicine, or did without. Many thought twice about seeking help when they were sick.

Today, Canada has a half-built pension system. It serves a fortunate minority relatively well, but leaves many workers facing a bleak retirement.

No one is utterly destitute. All seniors are entitled to a monthly old age security payment. And those who belonged to the workforce receive a Canada Pension Plan.

But these public programs are designed to provide a modest base on which to build a private retirement income. And millions of workers simply can’t.

The lucky ones – 38.5 per cent of working Canadians – have a company pension.

But their luck is running out. Many workplace pension plans are badly underfinanced. General Motors Canada, for instance, has a pension deficit estimated at $6.5 billion. If the company fails, despite all the concessions its workers have made, its retirees could lose up to 60 per cent of their pension benefits. The Ontario government has a Pensions Benefits Guarantee Fund. But it would be swamped by the insolvency of an industrial giant like GM.

The remaining 61.5 per cent of Canadians – who have received far less attention – have no private pension.

Some have managed to squirrel away enough money in registered retirement savings plans to live comfortably when they leave the workforce. But most have not managed to set aside nearly enough for 20 years of non-working life. The median amount in registered retirement savings plans for workers on the brink of retirement is $60,000.

Last fall’s market meltdown brought the inadequacies of Canada’s retirement income system into sharp focus. But they’ve been there for a long time.

This week, Finance Minister Jim Flaherty wraps up four months of public consultations on the regulation of private pension plans. He plans to table legislation by the end of the year. But the federal government oversees only 10 per cent of workplace pensions.

A federal-provincial task force is about to launch a broader study of Canada’s retirement income system. But its report won’t be ready until December.

Ontario Premier Dalton McGuinty has asked Prime Minister Stephen Harper to convene a national pension summit. But his sense of urgency is not shared in Ottawa.

The public appears to be ahead of the politicians.

A consensus is rapidly developing that Canada needs a full-fledged public pension plan, covering all workers. It would either replace or subsume the current patchwork of arrangements.

The easiest way to achieve this would be to expand the Canada Pension Plan (CPP). It is comprehensive, financially sound and well managed. Providing all members with a decent, predictable retirement income would require a significant increase in premiums. But it would offer peace of mind to millions of worried citizens.

A second possibility would be to allow workers without private pensions to buy supplemental CPP coverage. This would restore a measure of equity to the pension system.

A third alternative would be to build a national pension plan province-by-province, the way medicare was built.

Most Canadians aren’t in a position to judge which option would be best. They haven’t heard the arguments. Many barely understand their own pension arrangements.

But they do know their hopes of a secure retirement have slipped away. They are looking to Ottawa for leadership.


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