Closing the pension gap

I concluded my presentation by first identifying my favourite of three broad policy options I mentioned at the outset, i.e., #1 initiating a second-level public pension plan, #2 making substantial changes to defined benefit plans to make them more applicable to SME’s and #3 taking a number of smaller steps upon the well established base that already exists. I chose the third option.

Acknowledging that many of my suggestions were in support of recent recommendations put forward in papers prepared for Advocis and by the C.D. Howe Institute, I also included suggestions based on the U.S. Pension Protection Act and proposed that getting financial advice be made a mandatory part of work place retirement plan participation. I divided these recommendations into four broad groups:

• Group #1 is about increasing enrolment and participation in work place retirement savings plans. It would include suggestions such as auto-enrolment with opt out; limited investment choices; target date funds as default investment options; auto escalation of contributions, somewhat longer vesting period than current; and increased contribution room.
• Group #2 is about making work place savings plans more available, including enabling the provision of work place savings plans by a provider other than an employer; enabling self-employed workers to enroll in such plans; lightening up on some of the costs associated with group RRSP’s by allowing the deduction of some administrative expenses and removing federal payroll taxes from employer contributions.
• Group #3 is about improving retirement income, including the implementation of a lifetime contribution limit, raising the age limit for contributions, allowing defined contribution plans to self-annuitize, eliminating minimum annual withdrawals from RRIF’s and LIF’s; allowing all retirement income recipients to claim the pension credit; and allowing income-splitting by all retirement income recipients.
• Group #4 is just one item, but an important one: harmonize all federal-provincial rules around work place retirement savings vehicles and retirement income.

My final word to the audience: there will not ever likely be a perfect solution to the challenge of ensuring Canadians have adequate retirement savings and incomes. There are however, some pretty good solutions. We should set our sights on achieving some of those pretty good solutions.

Peter Drake is vice-president, retirement & economic research, for Fidelity Investments Canada.

To comment on this story, contact us.