Pension reform – let’s get specific

David Christianson, BA, CFP, R.F.P., TEP

This month we will look at some of the detailed proposals that I believe have been floated for retirement reform and pension renewal.  If you don’t like any of these, then make your voice known to the Department of Finance, the Minister of Finance or your MP.

Mail may be sent postage-free to any MP at the following address: House of Commons, Parliament Buildings, Ottawa, ON, K1A 0A6, or find your member’s email address at http://bit.ly/1bjGA

The framework for the discussion seems to be the traditional three pillars of retirement income:

  1. Old Age Security and Guaranteed Income Supplement, which are universal but subject to income tests;
  2. Canada Pension Plan, to which an employee must contribute in order to qualify for benefits; and
  3. RRSP/RRIF and employer pension plans.

My first recommendation to the Department is to separate the thinking between RRSPs and registered pension plans.  The issues are different, the current treatment by the tax laws is somewhat different and discriminatory against RRSP savers, and a number of pension shortcomings have been addressed by substantial reforms initiated federally in 2009 and periodically by the provinces.

Some of the current pension initiatives would tighten up the governance rules for federal pensions - as was done recently in Manitoba – which is likely a good idea. Though more regulation can be a pain, enough companies and pension plans have done a poor job of stewardship of members’ assets and forward planning.  Some strengthening is therefore warranted.

Regarding individual retirees, there seems to be fairly broad acceptance of the fact that a lot of people currently in their 40’s, 50’s and 60’s will not have adequate retirement savings put away to support themselves in the lifestyle they desire.  Some will not even have the basics covered, unless they substantially downsize their homes and lifestyles.

The point I made last week is that society should look after those who are disadvantaged and unable, but the rest should be left to their own devices.  They need to make their own decisions to sacrifice current spending for future security.

However, collectively we have a responsibility to provide better financial education to all, because many of these people simply don’t understand the trade-offs. As well, many lack the knowledge or access to investment products, advice and reasonably-priced administration of investments, in order to successfully save for retirement.

The federal government currently has a task force on financial literacy touring the country, and I wish them well.  Manitoba is leading the country with a current initiative to integrate financial education into elementary and high school curricula.  Such programs must be supported and more widely available.

If not, then suggestions like the following may be adopted:

  • A doubling of Canada Pension Plan contributions, so this plan can provide a higher percentage of income replacement. The maximum annual contribution is currently $2,163 for employees and $2,163 for employers.  Raising it could be a real drag on job creation.
  • A central, government-sponsored voluntary pension plan, perhaps run like CPP.  Employees might be automatically signed up, unless they choose to opt out.
  • Private sector pension plans that can be offered to people without an employee sponsor, so that the self-employed can have a disciplined, pooled savings vehicle, with the tax benefits of a pension.

Keep those cards and letters coming, as there were some good suggestions made by readers.  These good ideas and opinions need to get to the policy makers, and now is the time.  (You can read the current comments on my blog.)

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For Manitobans looking to avoid a $200 fine, remember that cell phone use and smoking in the car with kids are now illegal.  (My last treat under that old law came Wednesday, when I saw a woman driving her mini-van with a cigarette in one hand and the cell phone stuffed between her shoulder and her ear. I went the other direction…
Hang up, folks – it can wait!

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David Christianson is a fee-for-service financial planner and portfolio manager, whose team at Wellington West Total Wealth Management Inc. provides comprehensive financial advice and management. You can e-mail him at dchristianson@wellwest.caor visit his website at www.davidchristianson.com.