Government must act to maintain DB plans: actuaries

Canadian Institute of Actuaries wants surplus limits raised to 25%

Governments may end up having to support more Canadians in retirement if they don’t change pension rules to halt the current decline in defined benefit (DB) pension plans, the former head of the Ontario Teachers Pension Plan warned last week.

Claude Lamoureux, who recently stepped down after 17 years as Teachers’ widely respected president and CEO, said organizations are turning away from DB plans due to pension rules that make employers solely responsible for deficits but require them to share surpluses with employees.

Now serving as an advisor to the Canadian Institute of Actuaries, Lamoureux said the federal government should also change the Income Tax Act to raise the tax deductible surplus limit from the current 10 per cent to 25 per cent.

“If you can accumulate a good surplus in good times, then for the employer it makes more sense to continue the pension plan when times are tough because it doesn’t impact their profit and losses the same way,” said Lamoureux during a visit to Montreal.

The proportion of Canadians who have DB plans has fallen from 44 per cent in 1993 to 34 per cent in 2003. If the trend continues, only public-service employees will have access to a DB pension plan.

The decline of DB plans will mean financial shortfalls in the future, as individuals managing their own retirement investments cannot hope for the same returns as professionally managed plans like Teachers, which benefit from economies of scale, long-term vision, diversification and financial expertise, said Lamoureux.

The institute is calling on the federal and provincial governments to hold a national summit to discuss legislative and regulatory pension reform.

“To my knowledge, the ministers responsible for pension in each province have never met (to discuss joint action to simplify and harmonize the regulations),” he added.

One-third of Canadians have no retirement savings at all, according to a 2007 study jointly conducted by the University of Waterloo and the Canadian Institute of Actuaries. Two-thirds of Canadian households expecting to retire in 2030 aren’t saving enough to meet necessary living expenses.

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