Business

What's being discussed

Federal and provincial finance ministers continue to talk about how to protect pensions so Canadians can retire without worrying they won't have enough to live on.

For the past two years, the federal government and provincial finance ministers have been looking at what to do to help Canadians better prepare for retirement.

When the bottom fell out of the stock market in the financial crisis that swept the world in 2008, company pensions and registered retirement savings plans were hit hard. It was feared that some pension plans would not be able to meet their obligations to current and future retirees — and that some retirees would have no pension at all if the companies they worked for went bankrupt.

People who had to rely on RRSP savings faced the prospect of having to work several years longer than planned to make up for their losses.

While markets have recovered much of what they gave up and many plans that were at risk are solvent again, Canadians are still worried about what their retirements will look like.

An Ipsos Reid poll commissioned for the Canadian Institute of Actuaries suggests 42 per cent of Canadians over the age of 45 feel they are not financially prepared to live comfortably after they leave the workforce.

Seventy-two per cent said they were concerned about maintaining a reasonable standard of living in retirement.

similar poll done by Ipsos Reid in November 2006 for BMO Financial Group suggested that 70 per cent of Canadians don't feel they're on track with their retirement savings — or don't know if they're on track.

Whatever the numbers, it's clear Canadians have concerns about how they're going to be able to afford to retire.

CPP contribution rates (4.95% of earnings)

YEAR

2006

2007

2008

2009

2010

Maximum pensionable earnings

$42,100

$43,700

$44,900

$46,300

$47,200

Employee/employer maximum

$1,910.70

$1,989.90

$2,049.30

$2,118.60

$2,163.15

Self-employed maximum

$3,821.40

$3,979.80

$4,098.60

$4,237.20

$4,326.30

Source: Canada Revenue Agency

The Canada Pension Plan is on sound financial footing, but it's only designed to provide pensions equal to 25 per cent of the average Canadian wage. The current maximum benefit is $934.17 a month. However, the average recipient gets $502.57 a month. Add to that a maximum payment of $516.96 in old age security payments available from the age of 65 and you're up to a maximum pension of $1,451.13 per month.

Low-income seniors are also entitled to the Guaranteed Income Supplement. The amount depends on how much pension income they're receiving and whether they have a spouse.

Beyond that, it's up to you and your savings.

Here's a summary of some of the changes that have been proposed recently.

Gradually and 'modestly' expanding the CPP

In a letter to provincial finance ministers on June 11, 2010, federal Finance Minister Jim Flaherty suggested that modest, mandatory increases to CPP premiums could be used to fund higher benefits. He hasn't said how much premiums would rise or how much monthly benefits would rise.

He also recommended that financial institutions be given the regulatory freedom to provide more pension options at low cost, especially to self-employed people, small businesses and workers not covered by corporate plans.

The changes have been welcomed by unions and the Canadian Association of Retired Persons (CARP), a group that lobbies for seniors. However, groups like the Canadian Federation of Independent Business say raising CPP premiums is a tax on business and will lead to job losses.

Doubling CPP benefits

Under a plan proposed by the Canadian Labour Congress, a 28-year-old entering the workforce now would receive $1,772.54 per month from the age of 65. That's double today's maximum benefit. If you're 45, the CLC's plan would increase the maximum pension payout by $479 per month.

CLC president Ken Georgetti says raising premiums by 0.4 per cent a year for the next seven years should be enough to fund the increase.

Voluntary privately-run savings plans

Alberta and British Columbia have come out against expanding the Canada Pension Plan. While the two provinces have not come out with specifics yet, they have been advocating an increased role for voluntary savings plans with the "right combination of private sector delivery with public oversight and monitoring."

Alberta Finance Minister Ted Morton reacted angrily to Flaherty's proposed changes, calling them an "overreaction."

Morton said low-income workers would be hurt and higher-income earners would get benefits they don't need.

After meeting with provincial finance ministers in Prince Edward Island on June 14, 2010, Flaherty said a government-sponsored, voluntary supplementary plan that would have functioned much like an RRSP is off the table.

The bottom line

There is substantial opposition to mandatory supplemental retirement savings plans. The Canadian Institute of Actuaries points out that younger Canadians may need to focus on paying down debt before seriously saving for retirement. Mandatory contributions could hamper their debt-reduction efforts. Lower-income Canadians could pay a high price for mandatory coverage that could lead to reduced real benefits, as a higher pension payout results in a clawback of GIS payments.

Any changes to the Canada Pension Plan may be difficult to achieve. Parliament and two-thirds of the provinces with two-thirds of the population must agree to the changes before they can be made.