Defined contribution pension coverage for the masses has become a very hot political topic in recent months. It has occupied the minds of federal and provincial finance ministers, pension commentators and life insurers as a front and center issue.

The major concern that is emerging surrounds the concept of the Alberta/BC Pension Plan (a.k.a. the ABC Pension Plan, or the Pension One Plan). On the heels of the concept of the Canada Supplementary Pension Plan, as published by the C.D. Howe Institute, the ABC Pension Plan was a recommendation of the Joint Expert Panel on Pension Standards (JEPPS) that was established by the governments of Alberta and British Columbia in 2007 to study the pension legislation of the two provinces and make recommendations for pension reform. The ABC Pension Plan recommendation reflected the Panel’s concern over the decline in private sector pension coverage to about 22% of workers in the two provinces.

In October 2008 B.C.’s Premier Gordon Campbell jumped the gun on the public release of the JEPPS Report by promising to establish “a privately financed, defined contribution plan that will be available to employers, employees and self-employed people on a voluntary basis”. In the early spring of 2009, the B.C. Government even amended the Pension Benefits Standards Act to accommodate the ABC Pension Plan concept. In late April 2009 as part of the provincial general election campaign, B.C. Finance Minister Colin Hansen, and the opposition labour critic discussed the “Pension One Plan” with local pension industry players. 2010 has been targeted for implementation of such a plan.

Other expert panels have commented on the decline in pension coverage, as have labour representatives and seniors advocates. Politicians have noticed, and a number of provincial finance ministers met in Vancouver on July 31. In the meantime, federal Finance Minister Jim Flaherty has designated staff to facilitate meetings with the provinces to discuss pensions, and a summit of federal and provincial finance ministers to discuss pensions has been scheduled for Dec. 17 and 18.

There is also a great deal of informal discussion in the pension industry around the concept of a public DC pension plan accessible to all Canadians. My perception is that most industry participants, outside of the insurance industry, favour the idea. Canada’s life insurers, however, appear to strongly oppose the idea on the basis that the private sector stands ready to deliver the DC plans that Canadians require, if only government will remove the barriers to broader employer participation in such programs.

The insurance industry is understandably concerned—the JEPPS ABC Pension Plan concept goes to the core of their retirement savings business in such a way that they perceive that they will not be able to compete. I don’t think this was the intention of the JEPPS, or within Premier Campbell’s decision to forge ahead with the Pension One Plan. I think the insurance industry may be premature in its opposition, particularly since no details of how the Pension One Plan would work have been released (or even formulated yet, I suspect).

It is clear, though, that a significant political will to increase pension coverage is developing, and the train will soon be leaving the station. Under such circumstances, Canada’s insurers, and other pension industry players, would be well advised to work cooperatively with governments to create a solution to the pension coverage problem that all stakeholders can all live with.

With that in mind, I have laid out below my personal roadmap to a solution of the pension coverage dilemma.

Road map to Defined Contribution pensions accessible to all Canadians

Ultimate objective: Increase pension coverage for Canadians.

Options to be ruled out:
• Expansion of the Canada pension plan: contributions to CPP are broadly viewed as “payroll taxes” which would mean any expansion of the program would be negatively received by businesses and individual members. Furthermore, such an expansion would crowd out private savings, further inhibiting growth of that system and negatively impacting the financial services industry.
• Defined benefit programs: defined benefits are only possible when a third-party provides a guarantee (or, in the case of public plans, when one generation guarantees the benefits of another). For broad-based programs, defined benefits have already proven themselves to be hugely expensive and place a large burden on taxpayers. Of course excluding defined benefits from such a program leaves room for unions and employer sponsors who may choose to offer these programs as an alternative.
• Retirement income delivery models: proposed programs often focus, unnecessarily, on facilitating retirement income delivery, which is not currently a problem, rather than on asset accumulation which clearly is a problem. By focusing just on the asset accumulation phase, we will permit and encourage financial services industry participation in delivery of benefits via transfers of assets at retirement of members and rely on industry competition to ensure both innovation and appropriate pricing in retirement income products.