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Decision not to reform Canada pension plan called mistake

OTTAWA — The Ontario government has called on Ottawa to rethink its decision to scotch plans to expand the Canada Pension Plan, calling the decision a “serious mistake.”

OTTAWA — The Ontario government has called on Ottawa to rethink its decision to scotch plans to expand the Canada Pension Plan, calling the decision a “serious mistake.”

Finance Minister Jim Flaherty told reporters Thursday that instead he will ask provinces to sign on to a new private-sector plan allowing small firms, employees and even the self-employed to pool resources on new, low-cost pensions.

He said expanding the CPP, something he had pushed in the past, is not an option at the moment because some provinces are opposed.

“It’s a multi-jurisdictional challenge to get a consensus on CPP,” Flaherty said. “It’s clear we do have broad support for the private sector solution.”

But Ontario’s finance minister, Dwight Duncan, condemned the decision, saying only Alberta has expressed opposition to a modest expansion of the government-backed pension system.

While he supports Flaherty’s initiative, he said it is not adequate to address the serious under-savings among Canadians.

“It is a serious mistake to try to punt the discussion about the future of the Canada Pension Plan down the road likely three to five years,” he said.

“The baby boom turns 65 in two weeks ... and the research that finance ministers commissioned conclude that a significant minority of middle-class Canadians are not saving sufficiently for retirement.”

In the House of Commons, Prime Minister Stephen Harper suggested economic conditions are not ideal for addressing the pension issue through the CPP, because it would mean increasing premiums.

“As for the Canada Pension Plan, I think all are agreed that while we will continue to look at improvements, that now is not the time for CPP premium increases,” he said.

The proposal on what Flaherty called “Pooled Registered Pension Plans” will be put to the provinces at a meeting in Kananaskis, Alta., on Monday.

At the earliest, the new plans could be in place by the end of 2011, he said.

Flaherty said the pooled plans could address the issue of many Canadians in their 20s, 30s and 40s, who don’t regularly sock away enough for their retirement years.

As well, he said, many small and medium-sized businesses which can’t afford, or don’t have the expertise, to establish pension plans for their employees would now be able to offer them.

“It would make a nice, easy way for people to save for their retirement, it would be relatively painless and it would have the professional management (insurance companies) that larger pension plans have,” he explained.

The Canadian Bankers Association and representatives of small business have endorsed the private-sector plan.

“A pooled registered pension plan fails to address the real needs of Canadians not able to save for retirement,” said Paul Moist, national president of the Canadian Union of Public Employees.

“This proposal will only leave Canadians exposed to gouging by Canada’s mutual fund industry, who charge the highest administration fees in the world.”

NDP Leader Jack Layton charged that lobbyists from Canada’s large financial firms, who would administer the plans, had influenced the government, while Liberal critic Judy Sgro accused Flaherty of taking the easy way out.

“This is a baby step ... but it’s not going to do much for (many) self-employed, for women that are in and out of the work force, for those in rural Canada. This applies to a very small segment,” she said.

Under the federal proposal, the pooled, low-cost plans would be based on defined contributions. It would be available to any type of employee, as well as the self-employed.

One advantage, say insiders, is that the payoff is more immediate than CPP reform, which could take a full generation before the full benefits can be realized.

By giving financial institutions the leeway to set up large, pooled plans as soon as the end of 2011, employees not covered by company pension plans could start siphoning their savings in that direction right away.

Ottawa and the provinces have been discussing how best to reform the country’s retirement income system for well over a year.

The financial crisis of 2008 exposed how fragile many Canadians’ retirement savings were, and revealed that huge chunks of the population can’t depend on company-sponsored plans to carry them through their retirement years.

Research has shown that RRSPs and other types of individual savings are not sufficient for many people, and because of bank management fees, are a high-cost way of saving.

Last June, the provincial and federal governments said they would look at a three-pronged reform: financial literacy, regulatory changes to give the private sector more freedom to offer low-cost savings options, and gradually enhancing the CPP.

By pushing the private-sector reforms first, Ottawa can get the file moving while it figures out how to handle the larger CPP issue.