First, despite what you may have read, our national pension system is not in crisis. It could be better, certainly. But Canadians can rest easy knowing that a basic level of retirement income is provided for by the very well-managed Canada Pension Plan (CPP) and Old Age Security (OAS) program. Our system is admired around the world.
Second, there is political momentum behind efforts to improve the pension system. That momentum is driven largely by recognition that Canada’s baby boom generation, as it enters retirement, will place a heavy burden on the system. This (along with volatile capital markets and low interest rates) has contributed to fears of a looming disaster.
Here’s how pensions across Canada — those provided by government, employers and via personal savings — are likely to change:
1. Risk is going to be shared differently
The goal is sustainability of the system, according to the report on the National Summit on Pension Reform in 2013. That means you and I are going to be required to take on greater risk (we will have to save and invest more), and our employers and governments will lessen their exposure. This probably doesn't mean lower CPP and OAS payments. But it will mean that both private and public sector employees will get less from their workplace plans than previous generations have.
2. Many of us will retire later.
3. Pension plan design changes will grow more common.
Expect plan design changes on a more frequent and more transparent basis as boomers move through the retirement income system. For this to be successful there will have to be real balance between the interests of management and labour.
4. There will be more ways to save at work
This aspect of Canada’s system was headed in the wrong direction. According to the report, about 39% of the country’s paid workforce has an employer-sponsored pension plan. And that national average overstates the reality among private sector workers by a wide margin. “Overall saving rates in Canada are low, and there is a definite need to facilitate growth in Canadians’ workplace savings if we are to sustain an acceptable standard of living for the growing ranks
of retirees,” reads the rgu
The recently introduced Pooled Registered Pension Plan is designed to address this problem. Ottawa created a regulatory framework for the new plans, and has left it to the provinces to decide how (and if) they want to implement.
5. CPP coverage could expand but we will need a new government to make this happen.
We could see higher CPP payments and/or a new way for Canadians to top up their payout with individual contributions. There’s considerable debate on expanding CPP. Those for it point to the strength of CPP and ask why we wouldn't want to rely on it more heavily. Those against it say it’ll increase taxes for consumers and businesses (because the money has to come from somewhere). Could go either way but our current government is opposed to increasing the CPP, so to bring about change we may have to change the government to a party that is more interested in helping citizens than helping business.
6. It a safe bet that Canadians will have to save more personally if they hope to see the kind of retirement income previous generations have earned thanks to government- and employer-sponsored plans.
The question for policy makers will be how to cushion that blow in the form of creative plan design and saver-friendly tax incentives.