Canada’s Pension System Requires Government Intervention, says Lamoureux

“One-third of working Canadians have no retirement savings at all,” he said. “A good many of the other two-thirds are not saving enough to fund an independent retirement. Yet despite their many advantages as a retirement savings vehicle for Canadians, defined benefit plans continue to decline while governments stand by watching them disappear.”

Lamoureux suggested that DB plans will soon be available only to politicians and civil servants. “Imagine how taxpayers will feel about supporting these plans through their taxes, when their own workplace offers either a less effective program or none at all,” he said.

He explained that DB plans not only help to attract and retain employees by offering greater predictability to plan members and deliver better investments returns than defined contribution (DC) plans, but that they also offer a stable pool of capital to finance long-term investment projects that bring social and economic benefits for Canadians.

Lamoureux expressed his support for three proposals made by the Canadian Institute of Actuaries to help turn around the decline of defined benefit pension plans. The first proposal calls for new legislation allowing the establishment of pension security trusts fully funded by the plan sponsor. Contributions to the trust would be separate from, but complementary to, regular plan funds. Trust surpluses not needed to meet pension commitments could be returned to the plan sponsor.

The second proposal involves new legislation requiring DB plans to set a target solvency margin. Contribution holidays would be allowed only if the plan’s surplus exceeded the target solvency margin.

The third proposal calls for a change in federal tax laws to allow plan sponsors to develop surpluses much greater than the current 10% limit. This change would improve the security of benefits for plan members, according to Lamoureux. “If a plan sponsor wanted to make contributions over those made necessary as a result of actuarial valuations, this would only improve the security of benefits for plan members,” he said. “Why would governments stand in the way?”

Noting that currently only four finance ministers in Canada have responsibility for pensions, Lamoureux urged that ministers responsible for pensions begin to harmonize their efforts and start a dialogue on developing a national agenda for pension reform.

“While there are no quick fixes for Canada’s pension system, clearly it’s time for governments to act decisively and start working together to bring about much needed reforms,” said Lamoureux. “A national pension reform summit is the first step along this road, one leading to a healthier retirement savings system and a brighter financial future for all Canadians.”

The Association of Canadian Pension Management (ACPM) strongly endorses this call for a national summit on the retirement income system, said ACPM president Scott Perkin.

Currently, the provinces of Ontario, Nova Scotia, and British Columbia and Alberta in a joint effort, have expert commissions or panels reviewing the pension system in their respective jurisdictions.

“Once they have reported back to their constituencies, the recommendations of these expert bodies could naturally form the basis for meaningful discussions at a national summit of responsible ministers,” Perkin added. “ACPM would be more than willing to assist in making that happen.”

To read the 10 recommendations from the Canadian Institute of Actuaries, to read Actuaries unveil prescription for DB plans.

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