October 22nd 2009
The Canada Pension Plan needs a second tier that would either be mandatory or so attractive that people would be foolish not to sign up, says a seniors advocacy group.
About three-quarters of Canadians in the private sector don’t have access to workplace pension plans, Susan Eng, vice-president of the Canadian Association of Retired Persons, told The Chronicle Herald’s editorial board.
“We’re recommending that there be a new retirement-savings vehicle that is widely accessible, affordable, that will be constructed so as to provide a predictable and adequate benefit at the other end, and is of a size and management quality that will allow the fund itself to be robust enough to withstand the demographic and economic challenges that we have faced of late,” Ms. Eng said.
Created 43 years ago, the Canada Pension Plan was aimed at preventing poverty in old age.
“When you look at all the examples that have been flushed out in this economic crisis, you find that, indeed, the CPP has weathered the storm best of all,” Ms. Eng said. “You may not like it because it’s mandatory and you may not care for it because it’s inadequate.”
People aren’t saving enough for their retirement and they’re living longer, she said.
“This pension crisis, if nothing else, has told the broader public that the CPP, although guaranteed, is not going to be adequate,” Ms. Eng said.
“At this point, it is serious and we have been pressuring the federal government to take action.”
She conceded it will be tough to convince all stakeholders to buy into the idea of a second tier for the Canada Pension Plan.
“The push-back is going to come from people who stand to lose and people who stand to have to make contributions. So we’re talking about the insurance industry who sell annuities, the financial advice industry, pension fund managers as well, and CEOs that will have to consider making contributions because of the pressure or (because it is) mandatory.”
About 60 per cent of Canadians don’t have a pension plan, said Bill Black, who headed a provincially appointed panel that recently examined pension plans hammered by the sharp drop in financial markets.
“And a lot of those who do, what’s being provided probably isn’t enough on its own. So clearly there’s a need for more than we have today.”
But if pension premiums doubled, for example, “a lot of lower- and middle-income people couldn’t afford it,” he said.
Employers, particularly manufacturers already struggling with the high Canadian dollar, would also have a tough time increasing premiums. He likes the idea of a “strongly encouraged voluntary system. But then at least employers can tailor what they do to what they can afford.”
Provincial Finance Minister Grahame Steele said the idea of creating a pension plan with a second tier is under discussion.
“It is one of the options that are on the table at the national level. Right now, we’re in the research phase, where the national finance ministers are looking at various options for dealing with the gap in pension coverage.”