Canada’s banking sector recently emerged from the global economic crisis as a model of stability and prudence, but the same cannot be said of the country’s pension system. The complicated patchwork of legislation, jurisdiction, and regionalism which defines Canada’s retirement regime is antiquated and in dire need of reform.

In conjunction with the C.D. Howe Institute, Keith Ambachtsheer, director of the Rotman International Centre for Pension Management published on Thursday his report, In Pension Reform: How Canada can Lead the World. In it he sets out the goals of a new pension system and the principles on which it should be based. Ambachtsheer proposes a two-pronged plan for turning supplemental pension arrangements into an integrated, effective system.

His plan is based on the following principles:

• pension plan designs should target a post-work standard of living that is adequate, achievable, and affordable;
• all workers should have a simple, accessible, portable opportunity to participate in pension plans that have explicit post-work income-replacement targets;
• all forms of retirement saving should receive equal tax, regulatory, and disclosure treatment across all sectors of the Canadian workforce; and
• pension management and delivery structures should be expert, transparent, and cost effective.

In order to turn these principles into action, two things are required:

• bring the outdated rules and regulations governing supplementary pensions into the 21st century, and
• create a simple, low-cost pension plan for workers without a pension plan.

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Ambachtsheer’s proposed Canada Supplementary Pension Plan (CSPP) would set a default, inflation-indexed, income-replacement target of 60% for middle-income workers. This would imply a default contribution rate of 10% on income over $30,000, up to the current maximum income with respect to which tax-deferred savings may be deducted.

All Canadian workers without workplace pension plans could be auto-enrolled in the CSPP, with an opt out feature. Contributions would be deposited into personal pension accounts, with automatic partial annuitization between ages 45 and 65. Finally, a new arm’s-length agency would be created to manage the CSPP.

Ambachtsheer has been calling for a supplementary pension plan for some time, and has vocal supporters amongst the current and past heads of the Ontario Teachers’ Pension plan.

In an earlier C.D. Howe report, he identifies the most vulnerable area of the workforce as mostly private sector middle-income employees of small- to medium-size firms with no pension plan.

Download Ambachtsheer’s report here.

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