The December Whitehorse meeting between Finance Minister Flaherty and his provincial counterparts led to a decision to consult Canadians on pension reform. These consultations are now under way, and could lead to some key decisions about the future of Canada’s pension system in late May, when the ministers meet again.
All this does not come out of the blue. Five years of research has thrown new light on a wide range of pension-related issues. Three dominant themes have emerged: pension coverage and adequacy; the structure and cost of managing Canadians’ retirement savings; and the sustainability of traditional defined-benefit pension plans.
It is a fact that three-quarters of our private-sector work force does not have an employment-based pension plan. A significant proportion of these workers are not saving enough to maintain their living standard post-retirement. A related question is: What does “saving enough” mean?
A modest-income, empty-nest couple with a mortgage-free home may only need a pension equal to 50 per cent of their employment earnings to maintain their standard of living. Their CPP and Old Age Security payments will provide a significant portion of that 50 per cent. Add employment-based pension plan membership, and they are likely set for life. At the other end of the spectrum, a middle- to higher-income couple without either a mortgage-free home or a pension plan will need to save a significant portion of their income – at least 15 per cent – for many years if they want to retire at age 65 and maintain their standard of living.
Three points of view have emerged as to what, from a public policy point of view, government might do about these realities.
1. Allow the market to work by updating current pension rules and regulations so that the financial services industry can offer large-scale, multiemployer, multiprovincial supplementary pension plans across Canada;
