Pension reform

Strengthening the System

by Blake C. Goldring, M.S.M., CFA

The growing focus on pension reform is looking at the financial health of our fellow citizens. The issue has triggered public discussion, building up to a fever pitch last fall at the first ministers’ conference and making its way into the 2010 federal government budget. The Government of Canada has continued to conduct public consultations as it looks for creative and innovative ways to help improve pensions for Canadians.

We all know the trends: the number of defined benefit plans has and continues to plummet while RSP contributions are significantly below allowable levels, leaving many Canadians out in the cold on a number of tax and savings advantages. In a nutshell, the current system can be improved upon without spending a lot of taxpayer dollars while preserving investors’ right to choose where they want to put their money — and when to do so.

But what many may not have noticed is a flourishing group of plans known as Capital Accumulation Plans (CAPs). They include

Defined Contribution Pension Plan

Deferred Profit Sharing Plans

Group RSPs

Group Tax-Free Savings Accounts.

RSP participation increased

As well, a study conducted for one of Canada’s largest insurance companies earlier this year shows that despite the economy, overall employer participation in group RSPs rose last year to 46% compared to 32% the previous year. Employees on average also contributed 4.5% of salary to their DC pension plans in 2009, up from 4.2% in 2008. These numbers are encouraging but a lot more can be done to encourage further creation and effectiveness of CAPs.

At AGF Management we believe that the private system is best suited to provide the kinds of choices Canadians need to build their retirement nest eggs. This is a sentiment echoed by many others, including Bill Kyle of Great-West Life Assurance Company who authored a report last year calling for collaborative reform that would lead to a stronger pension system for Canadians.

Canadians like choice and we are encouraging government to continue on that path. Individuals should be allowed and indeed encouraged to contribute to RRSPs to mitigate the risk of over-reliance on a company pension and to enhance their overall ability to save for retirement. (Continuing with more great information on Page 2)

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