Pension crisis looms

OTTAWA — Federal and provincial governments are trying to hash out a way to encourage Canadians to save more for retirement.

OTTAWA — Federal and provincial governments are trying to hash out a way to encourage Canadians to save more for retirement.

But getting the different levels of government to agree on how best to do that, and to hatch a plan without alienating the powerful financial-services sector, will likely take far more than the day and half set aside for such matters in Whitehorse, Yukon, this week.

“This may not be an immediate crisis that we’re facing in Canada, but it’s one that is coming at us,” Colin Hansen, British Columbia’s finance minister, said..

The global financial crisis of the last two years has exposed the weaknesses of the country’s pension system. Now, there’s a growing consensus that major reforms need to be made, to ensure that the savings of Canadians — especially young people — have enough money when they retire.

Recent studies have shown that almost two-thirds of working Canadians have no workplace pension plan. And almost a third of Canadian families have no retirement savings whatsoever.

Plus, the percentage of Canadians covered by defined benefit pension plans has declined rapidly, as financially strained companies switch to less cumbersome defined contribution plans — at higher risk for employees.

At the same time, with the population aging quickly, more and more people are becoming dependent on their increasingly inadequate nest eggs.

In Whitehorse, Hansen wants to see all provinces and Ottawa clearly recognize that reforms are necessary. But he also wants to see a timeline for discussions and, if possible, an agreement that the Canada Pension Plan is a success story that should serve as the cornerstone of reforms.

British Columbia and Alberta have prepared a list of reform options for the meeting, and Ontario has a similar list — in the hope of forging the basis for an agreement.

And pressure from labour groups, federal opposition parties and seniors’ advocates is on the rise, in tune with public concern over income security after retirement.

“The important thing right now is to recognize that coverage is a problem,” said expert Keith Ambachtsheer, director of the Rotman International Centre for Pension Management, at the University of Toronto.

Ottawa, however, is trying to lower expectations.

“The fundamental result that we expect out of Whitehorse is to provide the information that both the federal finance minister and the other finance ministers need, to make informed decisions,” said Ted Menzies, the parliamentary secretary of finance who has led consultations on pension reform.

The challenge for finance ministers’ meeting in Whitehorse is to find enough in common so they don’t set off in disparate directions. Alberta and British Columbia have threatened to strike off on their own with a supplement to the CPP, if Ottawa stalls by promising to simply study the issue.

But beyond agreement that Canada’s pension system is fraying, there is a broad range of opinions about how bad the problems are, what the causes are, and how best to fix them.

“It’s extremely important that these people get on a similar page,” said Janice MacKinnon, professor of fiscal policy at the University of Saskatchewan and a former provincial finance minister.

The worst-case scenario would be for British Columbia and Alberta to go off on their own path, she said, because Canadians like to move. With a patchwork of pension regimes, moving becomes more difficult.

The two western provinces are well aware of that argument, however, and have toned down their threats lately. Similarly, Ontario has shown a recent willingness to consider their ideas, and has backed off on its talk about the need to focus on more study.

Even Ottawa has recognized that the analysis of retirement income security can’t drag on forever.

“We continue to be concerned about the shortfall in RRSPs (registered retirement savings plans),” Menzies said. “We have a good system in place, but obviously there’s something lacking, because it’s not totally utilized.”

For the financial services companies, left on the sidelines as they imagine lucrative opportunities vanishing, the budding consensus that the CPP should form the cornerstone of a solution is worrisome.

“Why reinvent the wheel when it may be more effective for governments in Canada to work together to improve the private-sector, tax-assisted system that we already have?” the head of the Canadian Bankers Association, Nancy Hughes Anthony, said recently.

Menzies says he is sympathetic to such arguments, but if the banks want to be part of a pension solution, they have a lot more work to do, he said.

He did not refer specifically to high management fees. But critics have frequently complained that such fees eat up a large chunk of savings, and so any national solution should be based on the public pension system where administration is much cheaper.

“This is an opportunity for the private sector to step forward,” Menzies said.

“Have you got an option that will encourage people to save? Have you got a way to entice people to think about retirement early on?”

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