Both cynics and more trusting analysts are crying
electioneering to explain an out-of-left-field
policy pronouncement on voluntary retirement benefit options in
Canada. On May 26
Canadian Finance Minister Joe Oliver offered a proposal
that would allow Canadians to make greater voluntary payments
to the Canada Pension Plan (CPP). There would be no change in
the mandatory contribution.
Olivers statement was light on details and triggered a
skeptical reaction. When you have this record of saying,
No, no, no, [and] all of a sudden before an
election you change your mindwhat other reason could
there be? asks Keith Ambachtsheer, director emeritus of
the Rotman International Centre for Pension Management and
president of KPA Advisory Services in Toronto. So this is
politically motivated, and its calculated to actually not
have any practical effect at all before the election.
The elections for the Canadian House of Commons will be held
on October 19.
Ambachtsheer adds that in Canada, with products for
individuals like Registered Retirement Savings Plans (which act
much like IRAs) and Tax-Free Savings Accounts (which allow
individuals to earn tax-free returns on aftertax investments),
investors have about as much as they need to save on a
voluntary basis. Providing another voluntary plan that happens
to be managed by the CPP Investment Board does not add much to
the equation, he says.
So far, the extent of Olivers progress on the
proposal, at least publicly, has occurred in the speech and
through a letter he sent to Canadas provinces expressing
his desire to engage in consultations on the matter over the
summer and fall. The point of consultations is to iron
out a lot of [the] details, says a spokesperson in the
ministers office. In some ways, the consultations
have already begun. Besides his original statement, there is
really not much more to add at this point.
Meanwhile, the pension community has remained doubtful about
the plan. Ian Russell, president of the Investment Industry
Association of Canada, wonders why the announcement was made in
the first place. It is a bit premature to be coming out
with a solution when the problem hasnt even been
defined, he says.
Russell believes the debate about the retirement gap in
Canada may be overstated and not as serious as its being
portrayed. Statistics seem to back up that view. A McKinsey
& Co. report released this winter showed that 83 percent of
Canadians are on track to maintain their standard of living
after they stop working, even though 60 percent of those
surveyed say one of their largest financial worries is not
having enough money for retirement.
Like Ambachtsheer, Russell stresses his belief that the
motivation behind the proposal was, at least in part,
political. In fact, the government has not yet said it is doing
anything more than initiating consultations, he says, which
indicates that cooler heads will prevail and
nothing will change at the CPP before the election.
Russell also says middle-income Canadians who use and can
afford wealth management services would be unlikely customers
for such a retirement scheme.
Not everyone has been this distrustful of the proposal. Dan
Kelly, president of the Canadian Federation of Independent
Business, which represents more than 100,000 small-business
members, was quoted as saying his group strongly supports the
move and expects there will be a large pickup from
Other issues, notes Ambachtsheer, focus around return
assumptions for the future. He asks, If a prefunded plan is
created for future payouts, what would the future return
assumptions be, and will they be overstated or understated,
thereby creating problems for future retirees who have paid
into the plan?
Obviously, a lot has yet to be detailed and discussed. With
Ontario moving ahead on its own mandatory pension plan, a
federal election looming and consultations on a voluntary CPP
yet to occur, the debate remains academic. For now, the
ministers announcement will provide a further basis for
pension debate in Canada and raise the risk of oversaturating
Canada with voluntary retirement savings choices.