New supplementary pension needed to fill retirement savings gap

Tthe ability of Canadians to put away adequate retirement savings is in jeopardy: C.D. Howe Institute proposes "a practical solution to the problem" – the Canada Supplementary Pension Plan

Toronto (30 May 2008) – Shortcomings in workplace pensions and individual retirement saving plans mean millions of Canadians face large declines in living standards when they retire. The answer, according to the C.D. Howe Institute is a major new supplementary pension plan for Canadians.

In the study, The Canada Supplementary Pension Plan (CSPP): Towards an Adequate Affordable Pension for Al Canadians, author Keith Ambachtsheer outlines the factors that jeopardize the ability of Canadians to put away adequate retirement savings and proposes a practical solution to the problem – the CSPP.

“The existing shortcomings are twofold”, he says. “First, an estimated 3.5 million Canadian workers have no workplace pension plan, and are not accumulating sufficient retirement savings to maintain a decent post-work standard of living. The second shortcoming relates to the 5.5 million Canadian households who currently have their retirement assets invested in retail products with high sales and management costs. These costs make it difficult for many of the 5.5 million households to generate adequate pension income at affordable saving rates.

Ambachtsheer argues that the first two “pillars” of Canada’s retirement income system – the universal tax-funded Guaranteed Income Supplement (GIS) and Old Age Security (OAS) systems on the one hand and the payroll-deduction-funded Canada and Quebec Pension Plans (CPP/QPP) on the other – should replace 30-40 percent of working income at the national median wage.

Pillar 3 arrangements – private retirement saving through work-place, registered pension plans (RPPs) and individual retirement saving plans (RRSPs) – should lift the total income replacement rate to at least 50-70 percent of pre-retirement income, and preferably higher yet. For many Canadians, however, low saving and high costs mean Pillar 3 will fall well short of this goal.

To address the inadequacy, Ambachtsheer proposes the Canada Supplementary Pension Plan (CSPP). The CSPP would have automatic enrolment, investment and annuitization features that would help individuals overcome some well-established obstacles to retirement saving.

By putting the individual accounts under a pension institution modeled on the CPP Investment Board, it would build on Canada’s successful track-record in creating solid arms-length public investment vehicles. As Ambachtsheer points out, “such a model would ideally be nation-wide, but can also work on a sub-national or provincial level.”

“Creating the CSPP is the logical next step for Canada’, Ambachtsheer concludes, “as it strives to build the best retirement income system in the world.”

“The CSPP offers all Canadians a realistic chance to achieve post-work income adequacy in a transparent, fair, cost-effective, and portable manner. In addition, the creation of a new arm’s-length, expert pension delivery organization would add importantly to Canada’s already-strong financial intermediation and global investment management capabilities."


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