David Denison believes he has seen the solution to the national pension crisis, and it's behind the glass doors he walks through every day.
The head of the Canada Pension Plan Investment Board is wading into the debate on how to ensure Canadians save enough for retirement by holding up the CPP model as a blueprint for new programs. In doing so, he is also setting up a potential clash with the insurance industry, which says that, with some rule changes to allow it to create more wide-ranging plans, there is no need for new government-mandated pension schemes.
By speaking up as politicians debate how to fix a pension system that's been shown wanting, Mr. Denison appears to be suggesting that governments can use the CPP to do more than just meet its current aim of providing Canadians an annual retirement income of 25 per cent of the average industrial wage.
The rest of Canadians' retirement income is supposed to come from personal savings and company pension plans. But according to a study by the Canadian Institute of Actuaries, only one-third of Canadian households are putting enough away to cover basic necessities in retirement.
In Mr. Denison's view, that's because some key "pillars of the retirement system that were put in place aren't working as had been hoped," particularly registered retirement savings plans, which few Canadians use, and company pension plans, to which 11 million working Canadians have no access.
In response, Mr. Denison is proposing that policy makers consider new regional or national pension plans aimed at helping those who don't have company plans and based on the CPP model. He also suggests supplementing the CPP with more mandatory payments that would increase retirement benefits - money that could also be managed by the CPPIB.
"The Canada Pension Plan works as it was designed to work," he said in an interview after a speech in which he laid out his thoughts. "It is sustainable, [has]stood the test of 12 years of history, so it's a model that works and people should be proud of that.
"Are there some lessons that can be learned from that model? Yes."
Mr. Denison argued in the speech that the CPP model offers higher returns and lower risks, and all at a "far lower cost than can be purchased from commercial money managers, and at a fraction of the cost individuals must pay for the management of their individual portfolios." One of the key benefits of the CPP model is scale, because bigger funds can manage money more cheaply, or "bargain down" private sector money managers. The CPPIB runs $117-billion of assets.
Mr. Denison said he's not looking for more business for the CPPIB; he is just laying out options.
However, the private sector is fiercely protective of its position in the retirement business, which can be lucrative, and is pushing back against new pension proposals that could cut into profits. Insurance companies such as Manulife Financial Corp. run about two-thirds of all the corporate defined-contribution plans in Canada and have called for a private sector solution to address the shortfalls in Canadians' savings.
"We think there's a lot of attractiveness to using the private sector to meet these objectives," said Frank Swedlow, president of the Canadian Life and Health Insurance Association.
Mr. Denison backs proposals to harmonize patchwork regulations on employer pension plans to lower costs and make participation in workplace defined-contribution pension plans - which do not guarantee payouts - more attractive. While that's in line with what the insurance industry has proposed, Mr. Denison says it's not enough.
For workers who don't have access to pension plans through their employers, Mr. Denison said there is merit in proposals by provinces such as British Columbia and Alberta to create plans. He said a "new organization modelled after the CPP Investment Board could be established to provide low-cost asset management services."
A third option is to ramp up mandatory retirement contributions on top of the CPP, which could run the money to take advantage of "existing administrative and investment capabilities."