Keith Ambachtsheer seems to have a lot of friends these days. Ever since the renowned pension consultant published The Canada Supplementary Pension Plan (CSPP): Towards an Adequate, Affordable Pension for All Canadians, pension reform has become a hot topic in industry circles. His cause was given a boost recently by the former head of the Ontario Teachers’ Pension Plan, Claude Lamoureux, who not only supported the creation of a CSPP, but went a step further by calling for a national pension summit. While observers roundly applaud Ambachtsheer’s efforts, there’s a palpable sense that unless it becomes a political issue, a CSPP may never come to pass.
According to Ambachtsheer, 3.5 million Canadian workers are being left out in the cold when it comes to retirement income. This group is mainly comprised of private sector, middle-income employees of medium-to small-size firms with no with pension plan. “Meanwhile, most of the employment growth is coming through—guess what?—medium-and small-size firms,” he says. “So this issue is going to get bigger and bigger as time passes.” An additional 5.5 million Canadian households currently have their retirement assets invested in retail products with high sales and management costs, which, he adds, makes it difficult for them to generate a decent level of retirement income.
Under the proposed CSPP, all workers who are not members of employer pension plans would be automatically enrolled using the current Canada Pension Plan and Quebec Pension Plan payroll deduction mechanism, but would be allowed to opt out if desired. Contributions would be set so that a post-work 60% earnings replacement rate becomes the goal, and workers would be able to move their accumulated RRSP assets into their CSPP personal retirement savings account if they wish. Like the CPP Investment Board, the CSPP would operate as an arms-length, expert entity with sufficient scale to operate at a low cost.
The report outlines the three pillars in Canada’s retirement income system: Old Age Security and the Guaranteed Income Supplement (pillar I); the Canada/Quebec Pension Plans (pillar II); and registered retirement savings plans (RRSPs) or company/union-sponsored defined benefit and defined contribution plans (pillar III).
Related Stories |
Ambachtsheer argues that the creation and implementation of the CSPP cannot be left to private-choice market forces alone, as the barriers to success would be too formidable, and calls for the federal and provincial governments to make the CSPP element of pillar III pension reform as successful now as the CPP/QPP reform process was 10 years ago. “They could leave Canadians no greater legacy,” says Ambachtsheer.
While observers say its tough to find fault with a CSPP, many wonder aloud at the mutual fund industry’s reaction, which may have the most to lose from such a plan. The Investment Funds Institute of Canada’s Pat Dunwoody, vice-president of member services and communications, cautiously praises the report while noting that it’s too early to predict its effect on the industry. “We’ve only seen the positive side out there and we want to make sure it appropriately represents the concept,” she says. “Certainly in Keith’s presentation there were a lot of assumptions made, so we want to look at those and make sure they’re valid.”
Towers Perrin’s Steve Bonnar believes the need for reform is clear, but that the actuarial goalposts have shifted. “The design structure he’s proposing assumes that you move from working life to retired life at age 65,” he says. “While individuals should be free to choose when they want to retire, I think from a public policy standpoint, we need to get ourselves collectively off of that age 65 design point.” He explained that the age 65 milestone was applicable in the past when the average lifespan was shorter, but with the longevity we’re witnessing today, it should be pushed back. “At this point we’re expected to live another 20 years, and I don’t think from a public policy standpoint that it makes a lot of sense anymore.”
He also questions the wisdom of creating a CSPP that piggybacks on the Canada Pension Plan Investment Board, resulting in a massive pool of money which could prove very tempting to future governments in need of investment capital. “The more money you have in one place that’s not that far away from government eyes, the more concern it gives me that the money might be invested for … political reasons,” he says. “At some point, the siren call of money becomes too loud.”
One industry expert who prefers to remain anonymous suggests that the report might be cause for reflection for some financial advisors. “They might ask themselves, ‘If my client can do some of their retirement savings under this new plan, am I offering enough added value to make sure I keep and grow my client base?’” he says. He also points to the compromises such a plan would likely require, given the lacklustre track record of inter-provincial legislative co-operation. “It’s still in its formative stages, and it will spur discussion and debate.”
While admitting the idea seems to be gaining traction, he says the greatest hurdle the idea faces is the jump from academia to implementation. “Moving from a paper with an excellent idea to a nation-wide pension scheme is a big step.”
To comment on this story, email jody.white@rci.rogers.com.