Dear readers: Your humble scribe has been producing content on what is being called an imminent pension crisis, for the the Alliance for Retirement Income Adequacy (ARIA), a site designed to foster an informed discussion about retirement issues. It has been quite an education, and I thought I’d share the stories with you. A category has been created, ‘Not so golden years,’ where this content will be archived.
“Sometimes the easier position is to pander to the lowest common denominator and say this thing is going to be a race to the bottom. But … I think it’s precisely because fewer and fewer people have an occupational pension that we have to look at increasing retirement security for the whole population.” – Alex Mazer
By John Devine
While most of the national chatter on the pension file has focused on public sector plans, the broader issue is one of retirement income security for all Canadians, says a former pension advisor to Ontario’s finance minister.
Joining a chorus of voices calling for an expansion of the Canada Pension Plan (CPP) to address growing retirement insecurity in the country, Alex Mazer says political leadership is needed to focus the debate and harness the necessary energy and consensus to deal with what many are calling an imminent retirement crisis.
“The federal government and the provinces have to be leaders in putting the retirement income debate back on the table, and being creative with solutions … it’s critically important that this conversation be put back on the front burner.”
With millions of boomers at or near retirement’s door, a review of their income sources is not reassuring. The collapse of the so-called three-legged stool of retirement has left as many as 60-65 per cent of Canadians without a workplace pension, forcing them to rely on meagre personal savings, and tighter government supports.
The retirement prospects for younger Canadians aren’t much better, as they face a working life of no pensions, financial pressures that make it difficult to save using traditional channels like RRSPs, and government cutbacks, such as hiking the eligibility age for Old Age Security from 65 to 67.
During his four years in government, Mazer had responsibility for the province’s pension file. While he says he’s not an ‘expert’ on pensions, his work certainly gave him insights and conclusions as to possible solutions to the lack of retirement income security for the majority of citizens.
“My perspective on pension issues is less of a technical one and more of a perspective around bringing the policy solutions together with the political decisions that make solutions possible.”
From Mazer’s perspective, the last four years were a period of ‘perfect storm’ conditions in which to enact pension reform. Public demand, demographic and economic conditions, and what he calls an outdated retirement system, all opened the door to changes to improve the prospects for a secure retirement.
“I think those conditions are still in existence today, to some degree, and so there is an opportunity to get pension reform back on track and reignite that momentum.”
Chief among the things that can be done to improve retirement security is enhancing the CPP, reiterates Mazer, who adds the broader national conversation should be about retirement income security, and not the more narrowly focused debate over public sector plans.
The feds and the provinces have had discussions over the last number of years about enhancing the CPP, but it has never gone beyond the talking stage, says Mazer. Enhancing the CPP would require federal and provincial approval, as well as a majority consensus of two thirds of the provinces representing two thirds of the population.
He says the type of political leadership needed for this to happen would be similar to that seen in the 90s to improve the CPP’s fiscal footings.
“There needs to be negotiations between the provinces and the federal government to determine what type of solution would meet that threshold … and while there have been discussions up to this point, I wouldn’t describe them as negotiations.”
In December, provincial finance ministers took steps to put expansion of the CPP back on the national agenda, but little detail emerged from their meeting. Federal finance minister Jim Flaherty said his officials would spend time considering ways to have a modest enhancement of the CPP, but the feds have focused most of their attention on their Pooled Registered Pension Plan (PRPP) option.
Many pension experts call PRPPs little more than a group RRSP, saying they won’t solve the retirement income security gap. Others, including Tyler Meredith of the Institute for Research on Public Policy (read what he has to say here) say the federal option could make a difference if they provide a target benefit, and have mandatory contributions.
“Innovation in private sector delivery of pensions is very important. There’s a lot more scope for that. The PRPP is one model, but it’s not the end of the conversation. There is a lot more to be explored. I just hope our governments have the tenacity to continue the debate,” says Mazer, who agrees that as constituted, PRPPs won’t be effective in providing retirement security.
The former government advisor is also not a fan of proposals to replace public sector defined benefit plans with DC models, saying any such move would be ill-advised.
“My personal opinion is that public sector DB pensions are very important and should be preserved, but they require some changes to make them sustainable and to respond to the fiscal realities governments are facing.”
And, despite the reality of fiscal challenges, it’s important to counter the “extreme position” that would have DB plans tossed aside, he says.
“The best response to that is to put arguments and facts on the table and contest those positions, because sometimes they are not contested in the media and other forms of discussion.”
If provinces were to enact a beefed-up version of a PRPP, Mazer suggests legislators develop a national framework with common elements to make pension pots portable, minimize management fees, etc. Commonality of approach also fits into the logic of enhancing the CPP.
However, for the question of retirement income security to move from talk to action, Mazer comes back to the need for political leadership.
“Sometimes the easier position is to pander to the lowest common denominator and say this thing is going to be a race to the bottom. But … I think it’s precisely because fewer and fewer people have an occupational pension that we have to look at increasing retirement security for the whole population.”