FEWO Committee Report

A. Overarching Recommendations

Over the course of this study, the Committee has been compelled to conclude that ensuring the future income security of Canadian seniors, both men and women, will require more than minor adjustments to the three pillars of the retirement income system. Witnesses have encouraged the Committee to consider ways to supplement the third pillar of the retirement income system. The Committee has been impressed by the diversity of policy proposals which have been developed by pension experts, private sector organizations, academics and labour organizations in Canada. While the Committee is not prepared to endorse any of these proposals at this time, it supports the call of many witnesses for a pension summit to have a comprehensive dialogue on retirement income issues.

The Committee applauds the federal government for its recent consultation on strengthening the legislative and regulatory framework for private pension plans. It also eagerly anticipates the findings of the Working Group on Retirement Income Adequacy, which is set to report to the federal and provincial Ministers of Finance in December.
The Committee recommends:

Recommendation 7

That the government continue to carefully examine ways in which it can help better protect Canadians’ standard of living in retirement by implementing its recently announced changes to the regulations of federally regulated private pensions; and to work with all stakeholders coming out of the December 17^th and 18^th meeting of first finance ministers in Whitehorse to carefully consider the findings of the Research Working Group on Retirement Income Adequacy.

This work is a good start, however it is only one part of the larger picture of pension reform. The Committee recommends:

Recommendation 8

That the government convene a pension summit in 2010, and that the Government ensures that such a summit brings together the widest possible selection of stakeholders to ensure that proposed solutions reflect the varied reality of Canadians — men and women; rural and urban; Aboriginal, native-born and immigrant; employees, employers and self-employed; disabled; young and old.

The Committee can conclude that there are significant gender issues which must be carefully evaluated in all policy and legislative proposals regarding pensions. While significant progress has been made in the labour force participation of women over the past few decades, women continue to have lower earnings than men and to take on a disproportionate share of the unpaid caregiving work. In addition, women have a longer life expectancy than men and thus their retirement savings have to stretch over a longer period. The Committee thus cautions against an overly-optimistic expectation that the gap in the retirement income of men and women will be eliminated in the near future. If public policy is formulated on this faulty assumption, older women will continue to be poorer than older men for many years. This would be unacceptable. The Committee therefore recommends:

Recommendation 9

That the federal government conduct a thorough gender-based analysis (GBA) of all policy proposals relating to women and pensions. This should include a consideration of the impact of unpaid caregiving work on the lifetime income of women; the impact of elder-care responsibilities, which are disproportionately borne by women, on the retirement options of women; and the fact that women have a longer life expectancy than men.

Proper GBA requires sex-disaggregated data. The Committee has heard that it is difficult to obtain sex-disaggregated data on women and pensions at the federal level. The Committee recommends:

Recommendation 10

That, for the purpose of gender-based analysis, all federal government data on pensions and income be disaggregated by sex so that trends in the retirement income of women and men can be easily monitored. The Committee also recommends that future triennial reviews of the Canada Pension Plan clearly identify the potential impact of changes on women and men.

B. An Overview of Policy Proposals

In Chapter 4, we saw that many Canadians are not saving enough to maintain their standard of living in retirement. The Committee agrees with Ms. Martine Sohier, Senior Consulting Actuary, Retirement, Watson Wyatt Worldwide, who observed that:

There is clearly a need to expand pension coverage and increase savings for Canadian women working in the private sector. To achieve this expansion, we need to develop new ways for women to save for their retirement, as well as to alleviate for the lower pension savings due to the non-traditional working patterns.[46]

There are many different policy proposals being discussed across the country to address this situation. This chapter lays out some of the proposals and identifies the key considerations of witnesses about each of them.

Some of the major reforms being proposed include:

• Expanding the CPP by increasing the replacement rate or through a fully-funded expansion of the CPP;
• Adding another layer to the pension system to supplement benefits from the other tiers of the retirement income system. These include a proposal jointly put forth by Alberta and British Columbia as well as the CSPP which has been developed by Keith Ambachtscheer, who has described the proposal in a publication for the C.D. Howe Institute;^[47]
• Promoting bigger pension plans, either by allowing small business, tradespersons and professionals to set up pension cooperatives or by allowing financial institutions to set up multi-employer plans;
• Changing the fiscal and regulatory framework to promote new pension plan designs, encourage more employers to sponsor pension plans, and let self-employed workers join pension plans.

a) Expanding the Canada Pension Plan

A number of organizations have identified the need to provide greater pension income coverage to the majority of Canadians who do not have private pension plans. CARP has proposed the establishment of a Universal Pension Plan for those currently without employer-sponsored pensions. Phased in over a number of years, the Universal Pension Plan would expand CPP coverage to provide 70% of pre-retirement earnings.

The Canadian Labour Congress has also developed a proposal to expand coverage under the existing CPP. This would be done by doubling of the proportion of average earnings replaced by CPP from 25% to 50% over seven to ten years to $1,635 per month, to be financed by an increase in worker and employer premiums.

Expansion of the CPP would be mandatory for all employers and employees. This universality has been praised by some witnesses, while others have cautioned that it would be an added burden to businesses.

The Committee recommends:

Recommendation 11

That the replacement rate in the Canada Pension Plan be increased from 25% to 50% to maintain a decent income and an acceptable standard of living, and that this modification come into force progressively over the next ten years.

b) Supplementary Pension Plan

There are a number of proposals to expand the public system by introducing a supplementary pension plan. The Committee has heard, for example, that Alberta and British Columbia are proposing the creation of a voluntary, supplementary defined contribution plan on top of the existing CPP. Keith Ambachtscheer, Adjunct Professor of Finance at the Rotman School of Management, University of Toronto set out a proposal for a CSPP in of paper published in 2008 by the C.D. Howe entitled The CSPP:Towards an Adequate, Affordable Pension for All Canadians[48].

Some of the key features of the Supplementary Pension Plan models are: contributions could be voluntary for employees and employers; the plan would provide complete workforce coverage and job-to-job portability across Canada; pension delivery institutions would be transparent and cost-effective; premiums could be collected using existing CPP and EI payroll systems, thus would provide easy administration for employers; and it would be possible to envisage coverage for those who are outside of the work-force.

While the voluntary nature of the supplementary pension plan was seen as an asset by some witnesses, others expressed reservation that such a model would continue to lead to groups of Canadians with insufficient pension income. The Committee recommends:

Recommendation 12

That the government introduce an optional supplementary Canada Pension Plan, conditional on provincial agreement, in order to help Canadians save more.

c) Pension Co-Operatives and Multi-employer Plans

Another potential solution to increase coverage and pension savings among small and medium-size companies. One way to do this is to encourage the formation of multi-employer plans that can be industry or trade-based. As Ms. Claudette Carbonneau of the CSN explained, one of the key advantages of multi-employer plans is that:

They allow for a large number of small businesses to be grouped together to achieve a critical mass that is big enough to realize economies of scale in management and administration fees. Moreover, they make it possible for defined benefit plans to be set up in areas where it is very difficult to do so.[49]

The witnesses from Watson Wyatt suggested that multi-employer funds could benefit from lower management fees and professional investment management oversight. This would make it easier for Canadians to save for their retirement. The Confédération des syndicats nationaux shared with the Committee the example of a sectoral pension plan developed for daycares in Quebec:

We managed to set up a plan for 1400 small businesses with around 30 employees each. This opened up a sizeable plan for 50,000 women workers, as most of the day care employees are women. Before the plan was established, there were only a few capital accumulation plans in this type of business. By bringing all of the industry together under the same plan, it was possible to set up a defined benefit pension plan of the final salary plan type. While many women change employers during their career, they very often remain in the same industry.[50]

Witnesses suggested that legislative and regulatory changes may need to be introduced to facilitation the creation of such plans.

d) Changes to the Fiscal and Regulatory Framework

Witnesses identified a number of barriers in the fiscal and regulatory framework, which make it difficult for people who are not currently in an employment situation to contribute to a registered retirement plan. For example, Mr. Jean-Pierre Laporte reminded the Committee that “the Income Tax Act that says you cannot have a pension plan unless there is an employment relationship, T4 income.”[51] Witnesses identified the need to modify the fiscal and regulatory framework to allow self-employed workers to join pension plans. They also identified a need to explore ways to allow workers who are not currently in defined benefit plans to benefit from contribution limits which would allow them to accumulate comparable savings to people in defined benefit plans.