A survey shows that an expanded Canada/Quebec Pension Plan (C/QPP) is considered to be the best way to improve Canada’s retirement income system.
When asked to identify the most cost-effective way to improve Canada’s retirement income system, 32% opted for an expansion of the C/QPP, according to Morneau Shepell’s 60-Second Survey. This would affect future service only and involve an increase in both the benefit rate (to 35%) and the earnings ceiling (to $76,000).
The other possibilities were to require every employer and employee to contribute 2% of annual pay up to $76,000 to a supplementary C/QPP DC arrangement (selected by 23%) and to auto-enroll everyone in a pooled registered pension plan (PRPP) without employers being required to contribute and to allow individuals to opt out (20%).
“It is a little surprising that over half the respondents are ready to increase employer contributions, either in an expanded C/QPP or in an equivalent DC arrangement,” says Fred Vettese, chief actuary of Morneau Shepell. “The general impression has been that employers were either unwilling or unable to contribute more to retirement arrangements in a fragile economy.”
When asked what role the C/QPP, Old Age Supplement (OAS) and Guaranteed Income Supplement (GIS) combined should play, 65% of respondents said middle-income individuals should derive enough income from these sources to retire comfortably while 27% said government pensions should be enough to avoid poverty.
The respondents were also asked what they would do with their organization’s pension plans if the C/QPP was expanded substantially.
Among respondents who sponsor workplace plans, 11% indicated they would wind down their plans and another 29% said they would reduce the benefits in their plans dollar for dollar. A further 26% would reduce their workplace plans by a smaller percentage and 34% said their workplace plans would not change.
“These responses suggest that an expanded C/QPP or a new DC arrangement with employer contributions will result in significantly increased benefits for many employees who are already enrolled in workplace pension plans,” Vettese adds. “Many more of them would end up with consumption replacement ratios in excess of 100% after retirement.”
Of the 200 employers who responded to the survey, 43% represented employers who sponsor mainly DB plans, 28% who sponsor mainly DC plans, 15% with a mix of both DB and DC, and 14% who provide little or no pension coverage.