According to Keith Ambachtsheer, president of KPA Advisory Services Ltd. and director of the Rotman International Centre for Pension Management, Canadian policymakers must choose between two leading pension reform models in order to ensure the country’s middle-income private-sector workers who do not have an employer-sponsored plan are able to maintain a comfortable living standard into retirement.
Of the numerous pension reform strategies considered by Canadian governments, a brief released by Ambachtsheer today suggests that two proposals stand out as the most workable solutions.
The first strategy involves expanding the Canada Pension Plan (CPP) through raising the year’s maximum pensionable earnings from its current level of $47,200, raising the income replacement rate from its current 25%, or a combination of the two.
The second strategy calls for an expansion of supplementary pensions, by enrolling the target demographic into one or more cost-effective plans that would serve in addition to the public benefits mix.
The brief cautions that while it may be tempting to achieve pension reform by implementing a mix of the two strategies, doing so would be “unacceptably risky” due each approach’s “feasible, but inherently complex design, implementation and communication challenge.”
“The super-complexity that would result from choosing a dual-track approach involving riding both pension reform horses would risk torpedoing the fruits of the years of research and debate that have gotten us to this point,” writes Ambachtsheer.
The brief references two recent papers focused on Canadian pension reform—Patrik Marier’s Improving Canada’s Retirement Saving: Lessons from Abroad, Ideas at Home, published in September by the Institute for Research in Public Policy, and Expanding Canada Pension Plan Benefits: Assessing the Big CPP Proposals by Jon Kesselman, published in October by the University of Calgary School of Public Policy. The Kesselman paper focused on the first strategy, Marier’s paper on the latter.
Ambachtsheer’s brief doesn’t indicate a preference for either option, instead he states, “Either strategy, properly designed and implemented, could propel Canada from its current fifth place ranking (according to the Melbourne Mercer Global Pension Index) in the global pension excellence derby to No. 1.”
The brief comes as Canada’s finance ministers prepare for their next meeting, to be held in December in Kananaskis, Alta., and scheduled to focus on pension reform.