Session 2B – Retirement Income Debate
Supporting a new way to save for retirement.
By Thomas Reid, Senior Vice-president, Group Retirement Services, Sun Life Financial
How do we improve the retirement income and savings system to help Canadians save enough for a secure future? In recent debates on the topic, we see consensus on many of the objectives of reforming the system—and agreement that we don’t need to drastically alter the system to meet those objectives. However, there is much discussion about which solution would work best.
Here is a new way for working Canadians, including the self-employed, to save for retirement. For now, let’s call it the “Canuck Saver” (a play on the “KiwiSaver” plan used in New Zealand). This solution provides an affordable, accessible and sustainable way to offer employment-based pension plans to all working Canadians.
Such an approach requires several legislative changes, including one that allows non-affiliated employers and the self-employed to band together to participate in the plan and requires all employers in Canada to provide their employees with a retirement savings plan. Under the Canuck Saver, the following rules would apply.
• Employers choose a plan that is sponsored and administered by a financial institution.
• Employees are automatically enrolled in an appropriate default fund or may choose from a small menu of investment options. A simple plan is an affordable plan.
• Contributions automatically escalate at a pre-set rate.
• Employees may opt out at any time but will be re-enrolled automatically after a predetermined amount of time.
A good governance regime will establish the plan’s purpose, select and review investment options, provide investment information and tools for members, provide all other plan disclosure about fees and performance, and address any potential conflicts of interest. It may be necessary to develop a model in which the financial institution is required to have an extensive, well-documented governance plan and perhaps a governing board, with or without independent representation.
We all have roles to play in making a solution like the Canuck Saver work. Governments in Canada need to play a regulatory role and facilitate the Canuck Saver through appropriate legislative change. Pension providers have a record of success and are ready to respond with their substantial and robust self-serve channels, including call centres, Web tools and investment guides.
Many countries have used similar plan structures to increase employee participation and contribution rates in group workplace savings plans. We are in a great position to watch, learn and then act based on their experiences.
Federal and provincial politicians are focused on the issue of retirement income adequacy. Let’s make sure we keep it on the front burner by continuing to make our voices heard in forums such as the DC Plan Summit. BC
Continued on the next page…
Session 3 – What’s the Take on TDFs After the Mother of All Stress Tests?
Why it’s important to know how to evaluate target date funds.
