Reports call for pension reform

Suggestions include more effective vesting, employer control of surpluses and removing the disincentive for older workers to stay in the workforce

Government, plan sponsors and plan members have to come together to rejuvenate and modernize Canada’s pension system and tackle a number of controversial issues, according to a report by consulting firm Towers Perrin.

In a white paper on pensions, it said the current system was designed in the early 20th century. As such, it is meant to address the retirement needs of employees who spend their entire career with one employer. Since many employees are now fairly mobile and unlikely to stick with one employer for their working life, the current scheme isn’t adequate.

The second big issue is linked to the future security of the private pension system, Towers Perrin said.

“In the current system, the question of who owns excess or ‘surplus’ assets in a pension plan — the plan members or the plan sponsor — is murky at best in today’s legislative environment,” it said in a statement. “This creates a situation that discourages companies from contributing more than minimum amounts to the pension fund. This has contributed in part to the current situation where many private pension plans are underfunded.”

In a white paper on pensions, Towers Perrin said that pension and tax regulators should require more effective vesting for employees and employers should have control over surplus, subject to specific conditions.

“Canadians are concerned about the security, affordability and flexibility of their pensions, given the drastic shift in job mobility, retirement age and longevity,” said Steve Bonnar, principal with Towers Perrin and co-author of the paper. “Their fears are intensified by complex valuation and accounting systems, and front-page headlines about mounting costs for plan sponsors and large pension deficits.”

Among the 27 recommendations in the white paper is creating one national regulator that will develop a common set of rules for all interested parties to follow, in addition to regularly reviewing the fundamental principles that underlie the pension system. This body would work to ensure pension plans are in sync with current social and economic developments that impact the funding, investing and accounting of benefits.

Bonnar said the tinkering with the current system needs to stop, and a new pension scheme needs to be constructed.

“We’re putting some concrete ideas forward and we hope to stimulate real discussion and debate over the next few months,” he said. “Hopefully we can get enough input this summer from corporate plan sponsors and other stakeholders to refine our proposal and take it to the next level. We want to put an action plan in front of the government and industry and move to implement the changes.”

Copies of the 12-page white paper are available at www.towersperrin.com.

Calls to remove the disincentive to work after 60

The C.D. Howe Institute, a Toronto-based think tank, is also calling for reforms to the pension system. It wants the Quebec and federal governments to encourage and facilitate later retirement by Canadians.

Policy analyst Yvan Guillemette said Ottawa should implement reforms proposed for the Quebec Pension Plan (QPP) in the Canada Pension Plan (CPP).

The Quebec proposals, said Guillemette, are designed to remove disincentives to working longer. Delaying retirement will become increasingly necessary throughout Canada as the population ages and shortages of skilled workers arise, he said.

“Such changes would help ensure that Canada remains a world leader in public pension reform, while maintaining one of the best retirement systems in the world,” said Guillemette.

He wants the Quebec government to adopt the proposed reforms to the QPP and urges Ottawa to follow suit with the CPP.

Copies of the report, entitled “Follow Quebec’s Lead: Removing Disincentives to Work After 60 by Reforming the CPP/QPP” are available at www.cdhowe.org/pdf/commentary_199.pdf.

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