Nova Scotia's Minister of Finance Maureen MacDonald is calling for workers and employers to beef up the Canadian Pension Plan (CPP).
MacDonald said it will mean that people will have to contribute more now but that it will pay off in the long term.
She said those who depend on CPP once they turn 65 and who have no other pension income don't have enough money to live on.
"We have a very strong plan. What we need to do is look at how we can improve it and ensure that people do have adequate income as they retire," said MacDonald.
Financial analysts and politicians have been warning for some time that Canadians are not saving enough for retirement, as company-led registered pension plans have become scarce and other investment options have either dried up or gone unused.
Only 24 per cent of eligible tax filers contributed to an RRSP in 2011, depositing a total of $34.4 billion, less than five per cent of what they were allowed to contribute, according to Statistics Canada. In 2011, just over six million Canadians belonged to a registered pension plan (RPP).
Household personal savings have been falling across the country — from a high of 20.2 per cent in the early 1980s to a low of 2.1 per cent in 2005, according to Statistics Canada.
Savings have rebounded slightly since then — the savings rate was 3.9 per cent in the third quarter of 2012 — but are still, on average, "woefully inadequate" to finance a comfortable retirement, according to a recent report from the Bank of Montreal.Returns over the next 10 years are going to be extremely low because volatility in the equity markets is extremely high," said Leo Kolivakis, a former analyst with the Caisse and the Public Sector Pension Investment Board which now publishes the blog Pension Pulse.
"How are people supposed to make and save money in this environment?"
MacDonald said any changes would have to be phased in over time.
"We are looking at an incremental improvement in the plan. And the details of that are something that the information needs to be gathered and analyzed and will be presented to finance ministers as we make this decision," said MacDonald.
The minister concedes that people might not be happy about contributing more money but she said in the end it's a win-win.
"That's income that is returned to the economy and into the small business sector," she said. "You know it circulates. It's not only a cost, it's a benefit."
MacDonald said work on CPP reforms could begin later this year.
An earlier reform effort led by federal Finance Minister Jim Flaherty in 2010 died after failing to win the support of Alberta and Quebec, which was led by a Liberal government at the time.