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Pension Reforms Crucial for Financial Security of Retired Workers
By Derek Sankey, Canwest News Service
May 26, 2010
Canada
Reforms to pension legislation are gaining strength in Canada, with potentially major implications for the broader retirement system as provincial and federal leaders sit down for ministerial meetings in June to find common ground.
Manitoba just introduced changes to its pension benefits legislation, effective May 31, but pension reform has been a topic of increasing scrutiny among provincial and federal politicians and pension experts, according to Chris Brown, managing partner with Spectrum HR Law LLP in Calgary.
"I think this debate has broadened and we're now . . . looking at the entirety of the retirement system as a whole, rather than just pensions specifically," says Brown, who co-chaired the Alberta-B. C. Joint Expert Panel on Pension Standards (JEPPS). The panel provided recommendations on how to change pension standards legislation in the two provinces to address what is becoming a growing problem nationwide.
"What we're seeing now with the declining coverage levels and the underutilization of RRSP room . . . is the Baby Boom generation is on the first wave of starting to retire and there's a concern about whether there's adequate income going to be available for that huge generational bulk of people," says Brown. "Frankly, it may well be too late for them."
Even if nothing can be done to avert an imminent pension or retirement income crisis, if changes aren't introduced now, mid-career workers will face the same predicament in coming years, he says.
There are three basic pillars of retirement income: the Canada Pension Plan or Quebec Pension Plan; other government programs such as Old Age Security and Guaranteed Income Supplement; and all other private savings vehicles, such as RRSPs, private pension plans and personal savings.
JEPPS provided its recommendations to government leaders by early 2009, while Ontario and Nova Scotia appointed commissions to focus on pension standards legislation governing pension plans offered by employers in those provinces.
"There's a lot of smart and dedicated people who spend their lives trying to figure out how to make pension plans run better," says Brown. "Many of those people have great ideas . . . if only the regulatory system was more flexible and adaptable."
He notes that there has not been a "significant overhaul" of pension regulatory systems in Canada in about 25 years. The general trend has been declining coverage by employer-sponsored pension plans, including a shift away from defined benefit pensions toward defined contribution plans during that time.
In Alberta, only about one-third of working adults are covered by an employer pension plan -- including the public sector and unionized workers -- while that number drops to 22 per cent among private sector employees.
Many of the extensive reforms recently introduced in Manitoba
"require prompt action by pension administrators," according to a research advisory from Hewitt Associates.
At the ministerial meeting in June, Brown expects to find out whether there is a willingness among the provinces and the feds to work together or not and, if consensus exists, which direction they are leaning toward.
There have been calls for years to harmonize pension legislation across the country, but "the political reality is much more difficult to overcome," he says.
At the same time, the Association of Canadian Pension Management just released its Education Initiative Report regarding how employers who offer pensions can do a better job of communicating what the plans mean to workers' retirement savings.
"They want to ensure employees maximize the organization's pension plan or retirement savings program," says Marcia McDougall, chair of the ACPM strategic communications committee.
"The challenge is that retirement seems a long way off for many employees, so it's hard to get them interested in the company pension plan until they're at the end of their careers."
One idea put forward by JEPPS is to create a broad-based, mandatory pension plan offered by all employers to employees - unless they opt out - as a default mechanism for savings.
Others include reforming programs such as CPP, Old Age Security or Guaranteed Income Supplement, or making regulatory structures more flexible to encourage new types of pension plans.
Either way, time is of the essence, says Brown.
"We've been putting off thinking about it for a long time," he says. "We'd better do something before it's too late."
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