Small business, pension reform, focus of pension summit

Opening the morning event was Neil Craig, an active participant in many pension industry advisory councils and leader of the group retirement practice at Stevenson & Hunt, with his blunt observations of the pension industry and of plan sponsors.

He summed up the employees’ position on saving for retirement and the current system as such:

• employees don’t have confidence in the government to run retirement saving programs efficiently; and
• they can’t afford to make contributions to a pension plan.

On the small employer side, he says the main issues are as follows:

• entrepreneurs want their employees to be independent (more like them);
• they, too, don’t trust the government;
• they don’t want to pay the expense of running a pension plan; and
• they want to know what incentives there are for them to implement a plan.

Craig made it clear that employers—particularly the small ones—are crucial to improving pension and retirement savings coverage and suggested that it’s not just the employees that need an incentive to get them to start saving, as employers need incentives to sponsor plans.

“Employer contributions are key in increasing employee participation. Let’s provide some incentive on both the defined benefit (DB) and defined contribution (DC) side to help [small employers] make the decision to sponsor a retirement savings program.”

The time is now
Pension expert and reform advocate Keith Ambachtsheer explained why reform to the Canadian pension system is needed now, what problems need to be solved and how that is going to be done.

“We’ve been doing our pension homework…I think it’s time we move beyond more information to figuring out how to move forward from here,” he said. “Three million private sector workers don’t have pension coverage and many RRSP savers face paying higher fees than they need to.”

According to Ambachtsheer, the current pension rules and regulations are old and tired and “our private and public sector DB plans are losing legitimacy and are becoming increasing unsustainable in their current forms.”

While he didn’t propose an overarching solution to the pension problems, he was adamant that pension reform doesn’t have to start with the federal government—and predicted it likely won’t.

“Reform will come from the West. Ontario is questionable but that should be answered in the next month. Not everything has to start in Ottawa. Provinces can initiate change.”

Ambachtsheer added that he expects much to come from the upcoming meeting in Whitehorse between provincial ministers and the federal Finance Minister Jim Flaherty in December. “There is going to be a pension reform train leaving and the question is simply who is going to be on that train. It’s going to get very interesting.”

He also suggested that a working group of officials be given the responsibility to address the rules and regulations problems and “bringing them into the 21st century.” This would allow reform to move forward.

MEPPs the word
Wrapping up the session before the lively question and answer period was Tom Reid, senior vice-president, group retirement savings, with Sun Life Financial.

He reiterated the fact that savings rates of Canadian households are far below that of other countries. In fact, the savings rate in Canada is approximately 4.6%, whereas in the U.S. it’s 6.5%, 10.1% in Italy, 12.5% in Germany and 13.4% in France. “Everyone has a vested interest in solving the problem of savings,” he said.

Reid’s proposed solution was a national, voluntary pension plan—a super multi-employer pension plan (MEPP)—that automatically enrolls employers and employees. Of course, all participants could opt-out but he suggested few would. “Access to [a] low-cost retirement savings [program] will be advantageous in the talent war,” he said.

Reid added that by allowing the private sector to provide the ability to provide non-sponsored pension plans there would be more choice for employers and employees. “Competition drives innovation,” he said. “What system is more likely to satisfy choice?”

But not everyone in the room felt that MEPPs are the answer. “I notice that in reform proposals there are changes with respect to communication issues,” said Craig. “I think that may be able to help some of the problems with multi-employer plans, but I am not convinced they are the be all and end all—particularly for small businesses.”

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