C.D. Howe paper addresses provincial differences
With national single-employer pension plans at “a fragile juncture,” definitive action is needed both to enable these plans to grow and to address the issue of inadequate pension coverage, according to a paper from the C.D. Howe Institute.
Cross-jurisdictional differences in pension legislation and regulation make it less likely employers with workers in more than one province will establish a registered pension plan, said Gretchen Van Riesen, advisor with GVR Consulting in Toronto and author of The Pension Tangle: Achieving greater uniformity of pension legislation and regulation in Canada.
Other countries such as the United States and United Kingdom have a single act of pension legislation and one regulatory body. The regulation of pension plans across jurisdictions in Canada should not be as contentious as it is, she said.
“It’s only that way because of the way we’re set up constitutionally. It’s not an easy fix but it’s just not sensible and it costs a lot of money that could be spent to enhance pension benefits, instead of going to unnecessary administration costs,” she said.
Canada’s myriad differences create confusion as well as a sense of inequity and distrust among employees, said Van Riesen, while plans sponsors “face a higher risk of administrative error and legal challenges when confronted with dissonant rules or, potentially worse, rules that appear similar but have differences that may become apparent only in a courtroom.”
There are four options for regulatory reform and harmonization proposed in The Pension Tangle: one law, one regulator; a model law with multiple regulators; multiple jurisdictional laws with one regulator; and multiple jurisdictional laws with multiple regulators.
Option one: The first would feature one piece of pension legislation and one national regulatory body to supervise pension plans, possibly with staff in each province. For plan sponsors, this alternative is the most logical and cost-effective but it may also be the most challenging because of the provinces’ “vigorous defence of their primacy in pension matters,” said Van Riesen.
Option two: The second option would see the current regulatory structure maintained but the various jurisdictions would align legislation with a “model law” design developed and championed by the Canadian Authority of Pension Supervisory Authorities (CAPSA), which introduced model law principles in 2005. However, it will be difficult to prevent the provinces or federal government from making changes that move away from the model, she said.
Option three: Multiple acts of legislation, with multilateral agreements currently in place, with one national regulator would add up to the third alternative, but implementing the latter is likely to be difficult, said Van Riesen.
Option four: The fourth option, which would augment CAPSA-sponsored guidelines and rule-making authority for regulators to increase and maintain uniformity, would also have its challenges because “rule-making authority entails the possibility of movement away from uniformity rather than towards it,” said Van Riesen.
But private pensions have a growing role to play in providing incomes in old age, particularly in countries where public pensions are low for middle- and high-income earners and there are no mandatory private pensions, she said, citing a report from the Organisation for Economic Co-operation and Development (OECD) that shows the average Canadian worker can expect the public pension to replace a far smaller share of income than the average OECD worker.
“Mega-plans” such as an expanded Canada Pension Plan or a national supplementary pension plan are viable but, she asked, is that really what Canadians want, to ultimately eliminate the private sector defined benefit pension plan?
“Or do we want to try to have something that’s more sensible?”
