Canada Gets a Pension Proposal No One Asked For

An election looms, and the government floats a voluntary savings vehicle involving the Canada Pension Plan. Would it make a difference?


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.

Oliver’s 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 mind—what 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 it’s 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 Oliver’s progress on the proposal, at least publicly, has occurred in the speech and through a letter he sent to Canada’s 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 minister’s 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 hasn’t even been defined,” he says.

Russell believes the debate about the retirement gap in Canada may be overstated and not as serious as it’s 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 his constituency.

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 minister’s announcement will provide a further basis for pension debate in Canada and raise the risk of oversaturating Canada with voluntary retirement savings choices.