Let them save, says CLHIA

Canada’s insurance and health industry believes the country’s retirement system is far from broken, and that individuals simply need more incentive to save for themselves.

The Canadian Life and Health Insurance Association’s (CLHIA) latest report, Saving More for the Future: An Achievable Goal for Canadians offers recommendations that tinker with the existing retirement structure—such as expanding access to multi-employer pensions plans (MEPPs)—as opposed to significant reforms.

“This country does not need another big government savings plan,” says Frank Swedlove, president of the CLHIA. “We need to expand access and promote more use of workplace-based programs. That includes cutting the red tape and expense that hold back small business from offering them.”

Noting that only half of Canadian private sector workers currently participate in a workplace-based savings programs, the CLHIA report outlines several minor legislative changes that would encourage their use among both employers and employees.

Key recommendations include:

• amending pension legislation to permit any employer (including self-employed) to participate in a defined contribution (DC) MEPP. The report suggests this would relieve employers of “almost all administrative costs and compliance burdens for pension plan management”; • requiring businesses with 20 or more employees to offer their own pension plan either via a DC-MEPP or a group RRSP; • the locking-in of employer contributions to group RRSPs; and • broadening the definition of “earned income” for RRSP purposes to include items such as royalties, active business income, rental income, etc. The current definition currently acts as a barrier for the self-employed and professionals.

The CLHIA says there is a groundswell of public opinion in their favour. An Environics poll of 2,001 working Canadians on behalf of the organization states that almost 90% of respondents say workplace-based pensions or group RRSPs should be available to all working Canadians.

A further 40% said they want new savings options immediately, while 36% want them within five years.

While the report does offer some interesting ideas, any reforms that may come to fruition will have to be voluntary in nature and demonstrative of significant savings on the investment side, says Scott Clausen, an actuary and partner with Mercer in Toronto.

“Currently the system provides options to save through RRSPs and pension plans,” he says. “People aren’t utilizing it. If these new recommendations simply replace the status quo with no obvious advantages it won’t have any take-up. It must demonstrate that it will result in significant reductions in investment fees paid by members, and show how it can provide objective information to plan members.”

The CLHIA is also advocating for increased financial literacy, and recommends that governments of all levels develop a national program aimed at improving the comprehension of retirement-related issues, backed up by an advertising campaign.

(04/01/10)