The Committee’s witnesses held a variety of
views about the “health” of the nation’s current retirement income system, the
extent to which reforms are needed to public pensions, voluntary tax-assisted
retirement savings vehicles and/or occupational pension plans, and Canada’s
international ranking in respect of pension adequacy.
Various elements of Canada’s retirement
income system have been reformed over time, but in Canada, like in a number of
other countries, the recent global financial and economic crisis highlighted
the need to reform some elements of the system. In Canada, federal and
provincial governments, as well as other stakeholders, have been examining
whether—and, if so, what—reforms are needed to ensure a standard of living in
retirement that is at least adequate.
The views of the Committee’s witnesses about
the need for reform varied, with some arguing that the country’s retirement income system is basically sound, although limited reforms may be required in
specific areas. For example, Ms. Shirley-Ann George and Ms. Sue Reibel, of the
Canadian Chamber of Commerce, suggested that reform efforts should be focused
on improvements to key areas rather than on fundamental changes, a view that
was supported by Carleton University’s Mr. Ian Lee, who—appearing on his own
behalf—said that there is no pension crisis, and by BMO Financial Group’s Ms. Tina Di Vito.
This opinion was also expressed by Mercer’s Mr. Malcolm Hamilton, who
appeared on his own behalf and described the current situation as an economic
and financial markets—rather than a pension—crisis. He said that he could not
think of a country that has fewer problems than Canada in respect of retirement
Other witnesses, however, believed that
broader reforms are needed. Open Access Limited said that there is widespread
acknowledgement that change is required. Ms. Susan Eng, of the Canadian
Association of Retired Persons, noted a C.D. Howe Institute report by Mr. Keith
Ambachtsheer, entitled The Canada Supplementary Pension Plan (CSPP), which
argued that Canadians have inadequate retirement saving. Specifically, she
observed that nearly 30% of Canadian families have not saved for retirement and
that the registered retirement savings plan (RRSP) system is not fully
utilized. Ms. Eng also highlighted inequities between private- and
public-sector pension plans, a point that was also made by Mr. James Pierlot, a
pension lawyer who appeared on his own behalf.
Similarly, Mr. Scott Perkin, of the Association
of Canadian Pension Management, indicated that the lack of occupational pension
plans is one of the main impediments to adequate retirement income. On that
subject, Mr. Dean Connor, of the Canadian Life and Health Insurance
Association, explained that the administrative costs and complexities of such
plans stop many employers, especially small firms, from establishing them.
Mr. Perkin also commented that insufficient
voluntary retirement saving is another impediment to adequate retirement income.
He argued that individuals are not saving enough on their own, partly due to
the complexity of the current savings mechanisms. The Rotman International
Centre for Pension Management’s Mr. Keith Ambachtsheer, who appeared on his own
behalf, also spoke about this issue, saying that the average Canadian does not
know how much to save in order to ensure adequate income once retired.
Furthermore, he noted that administrative costs on mutual funds, which
constitute a sizeable proportion of retirement saving, are often 2% or higher,
making it difficult to reach a reasonable income replacement rate.
Additionally, Ms. Diane Urquhart, an
independent financial analyst appearing on her own behalf, argued that Canada
provides relatively less protection for occupational pension plan members in
the event of their employer’s bankruptcy. This view was also held by witnesses
from Nortel Retirees’ and Former Employees’ Protection Committee. However, Mr.
Hamilton brought a Mercer publication, Melbourne Mercer Global Pension Index,
to the Committee’s attention. According to this report, in 2009, Canada was
tied for second among 11 countries, behind the United Kingdom, on the issue of
employee protection in a fraud, mismanagement or insolvency situation, including
the protection of accrued benefits in the case of employer insolvency.
Furthermore, the report highlighted that—among the 11 countries—Canada,
Germany, the United Kingdom and the United States were the only jurisdictions
that offered some sort of protection for accrued benefits in the event of
insolvency in 2009.
The Organisation for Economic Co-operation
and Development (OECD)’s Mr. Edward Whitehouse, who appeared on his own
behalf, provided an international context for the examination of Canada’s
retirement income system, comparing it to 12 other OECD member countries.
He concluded that, for several reasons, Canada has a relatively
“high-performing” retirement income system. For example, poverty among Canadian
seniors is relatively low, with a poverty rate of 4.4% in the mid-2000s
compared to the OECD average of 13.3%. He argued that the relatively low
poverty rate is partly due to Old Age Security (OAS) and Guaranteed Income
Supplement (GIS) benefits, which provide an effective and universal safety net
for Canadian retirees. However, while recognizing that Canada has a retirement
income system that is very efficient at reducing poverty in old age, the
University of Saskatchewan’s Mr. Daniel Béland, who appeared on his own behalf,
argued that the role played by pensions in replacing income should go beyond
replacement at the poverty line. In his view, the Canadian retirement income
system does not adequately fulfill this role.
Supporting this view, Mr. Jean-Pierre
Laporte, a pension lawyer who appeared on his own behalf, noted that—in 2006—Canada
ranked 12th out of 14 OECD member countries in terms of the nation’s
pension income replacement rate, at 57.9% of pre-retirement income. However,
the OECD report presented by Mr. Whitehouse noted that, on average and in the
mid-2000s, Canadians over age 65 had incomes equal to 91% of the average
Canadian population, giving Canada a ranking of 3rd among 12 OECD
Figure 1: Average Income of Persons Aged More than 65 Years as a Proportion of
the Average Income of the Population, Various Countries, Mid-2000s
Source: Whitehouse, Edward. “Canada’s Retirement Income
Provision: An International Perspective,” report presented by Mr. Whitehouse to
the House of Commons Standing Committee on Finance, 27 May 2010.
The long-term financial sustainability of
Canada’s retirement income system was also noted by Mr. Whitehouse. He observed
that, while the population will age and public expenditures on pensions will
rise, the current system’s public expenditures—which are equivalent to 4.5 % of
gross domestic product (GDP)—are well below the OECD average of 7.4%. Moreover,
by 2060, public spending on pensions in Canada is projected to increase to 6.2%,
still below the current OECD average. Mr. Whitehouse also noted that the
combination of public and private sources of retirement income in Canada’s
system provides protection against the risk and uncertainties affecting it.
Finally, he asserted that another favourable attribute of the pension system in
Canada is that it does not provide incentives for early retirement.
While Mr. Whitehouse identified positive
aspects of Canada’s retirement income system, he indicated that there is room
for improvement in respect of occupational pension plans, private retirement
saving and public pensions. More specifically, he suggested that private
pension plan coverage could increase, particularly for low- and middle-income
earners. Regarding such plans, he commented that automatic enrolment is
occurring in some countries, and that other countries are introducing and
streamlining tax incentives, particularly for low-income earners.
As well, Mr. Whitehouse noted that
contributions to registered retirement savings plans are small in comparison to
occupational pension plans, and stressed that the administrative charges for
the former are relatively high; he argued that such costs should be reduced.
Finally, although Canada’s pension system does not provide incentives to leave
the workplace early, he provided figures indicating that the participation rate
of older Canadians nearing the retirement age of 65 is somewhat low compared to
other OECD countries.
Regarding public pensions, Mr. Whitehouse
suggested increasing the pension age, and indexing OAS and GIS benefits to
growth in average earnings to ensure that retirees’ standard of living does not
decline relative to the average population. Finally, to provide better
protection against risk, he suggested that the investments in defined contributions
pension plans of people near retirement should be automatically shifted to less
Finally, Mr. Hamilton spoke to the Committee
about Mercer’s Melbourne Mercer Global Pension Index report, which
evaluates the state of the retirement income system in Canada and ten other
countries in three broad areas: adequacy of benefits; long-term sustainability
of the system; and the integrity of the private-sector system, with a focus on prudential
regulation, governance, risk protection and communication. This report was also
mentioned by Mr. Connor. Overall, Canada ranked 4th out of the
eleven countries in 2009, behind the Netherlands, Australia and Sweden.
According to the report, the Canadian retirement income system could be
improved by addressing the low coverage of occupational pension plans and the
low household savings rate. It was also argued that Canada should index the
pension age to life expectancy and ensure that voluntary retirement saving is
used for retirement purposes and not withdrawn earlier for other expenditures.