TORONTO — Ottawa’s proposal to create voluntary pooled retirement pensions won’t go far enough to cover Canadians in need of a retirement plan unless they are made mandatory and given more teeth, the head of the Canada Pension Plan Investment Board said Thursday.
David Denison, president and CEO of the CPPIB, suggests enrolment in the savings devices —which allow small firms to offer their employees a voluntary vehicle to build up pension equity —should be automatic for Canadians who don’t have company-sponsored pension plans.
Mandatory plans would essentially force Canadians into setting aside more for their retirement each month, though Denison also recommended an opt-out provision. Under the proposed voluntary system, the size of benefits will depend on the size of individual contributions and the earnings by a particular PRPP.
Pension funds and retirement savings have been making headlines lately as the government tries to prepare for a looming pension crisis as baby boomers retire, drawing down funds in the system instead of contributing.
“There is much scope for improvement, as fully two-thirds of workers in Canada do not participate in a workplace assisted retirement program,” Denison said in a speech at the C.D. Howe Institute in Toronto.
But he added: “Unless some significant decisions are made as to how PRPPs are implemented, I fear that they will not increase coverage to the degree required to result in a material increase in levels of retirement savings among Canadian workers.”
Only about 4.5 million Canadians now have guaranteed benefits, most in the public sector. Many companies in the private sector have found the cost of guaranteeing benefits under defined benefit plans too expensive and, in some cases, have threatened the company’s survival.
Instead of expanding the CPP, as some pension advocates were calling for, Ottawa last year tabled legislation on the pooled registered pension plans, a move that was criticized by some for being little more than “glorified RRSPs.”
Denison said it’s important the plans have a simple default investment option, offer lower fees and allow Canadians to take accounts with them when they change jobs so they don’t end up with many small accounts.
He said it would also be important to make investment decisions easy for Canadians and help them convert the accounts into a pension-like stream of payments when they retire.
“The ultimate outcomes of the PRPP initiative will depend upon policy makers’ willingness to address these key decisions — I hope they don’t leave this as unfinished business,” said Denison, who usually avoids wading into the debate over pension plans.