StarBuzz Weekly, Toronto-VANCOUVER – A Liberal government will help Canadian families save for retirement with new measures to enhance our public pension system, including increased support for seniors and a new, voluntary Secure Retirement Option for Canadians without access to a pension plan, Liberal Leader Michael Ignatieff announced today.
“Canadians who work their whole lives to provide for their families deserve a secure retirement with pensions they can count on,” said Mr. Ignatieff, who made the announcement today alongside Vancouver Kingsway Liberal Candidate Wendy Yuan at a local small business – The Medicine Shoppe – whose employees currently do not have access to a pension plan.
“Stephen Harper chose to abandon the CPP and let five years pass by without delivering serious, much-needed pension reform,” he added. “Now, while he’s looking at complicated, higher-risk and higher-cost private options, Liberals are standing behind our trusted Canada Pension Plan to give families a reliable, simple and low-cost way to save.”
As part of our plan, a Liberal government will work with the provinces and territories to enhance the Canada Pension Plan (CPP) with:
A gradual expansion of the benefits provided by the CPP; and
A new Secure Retirement Option that will offer Canadians a simple, voluntary, tax-deductible savings option backed by the trusted, publicly-run CPP.
A Liberal government will also provide a $700-million annual boost to the Guaranteed Income Supplement to reduce poverty among seniors, especially women and seniors with disabilities.
To help workers left out in the cold when their employer goes bankrupt, Mr. Ignatieff also committed to greater protection for those collecting long-term disability benefits, and to create a Stranded Pension Agency to give Canadians a new and safe option to manage their private pensions after corporate bankruptcies.
“Fewer and fewer Canadians have access to a high-quality, employer-sponsored pension plan,” said Mr. Ignatieff. “The Harper approach may be welcome news for the banks and insurance companies on Bay Street, but a private option on its own fails to meet the needs of Canadian families.
“Enhancing the CPP provides enormous advantages to both employers and employees as it avoids the risk, complexity and hidden management fees that too often drain retirement savings from private financial sector plans,” he said.
Canadians aren’t saving enough for retirement, and three-quarters of Canadians in the private sector have no registered pension plan. The Harper Conservatives backed away from strengthening the CPP, after spending months talking about it. Instead, they have advanced a private sector option that offers little more than RRSPs already offer.
“We can strengthen families – without raising your taxes or making Canadians wait another five years – if we stop the Conservatives’ corporate giveaways and the billions they’re wasting on jets and jails. Now’s the time to focus on what really matters: giving every Canadian the tools to succeed in the years ahead.”
BACKGROUNDER
A Stronger Public Pension System for All Working Canadians
Canadians who work their whole lives to provide for their families deserve a secure and comfortable retirement.
Unfortunately, fewer and fewer Canadians have access to a high quality, employer-sponsored pension plan. 75% of all private sector employees do not have an employer pension plan(i).
Meanwhile, contribution levels to Registered Retirement Savings Plans (RRSPs) have not grown over the last decade. Many RRSPs have annual charges of 2% or more on assets. The costs, risk and complexity of RRSPs deter many Canadians from using them to provide for their retirement security.
About 20-25% of current retirees are not able to replace an adequate amount of their pre-retirement income. Forecasts of the personal savings rate and household balance sheets suggest that the ‘at-risk’ population of retirees will increase in coming decades(ii).
A Liberal government created the Canada Pension Plan (CPP) in 1965. Thanks to the work of Liberal governments in the 1990s, the CPP and Old Age Security are on sound financial footing. But for many seniors, these pillars of our retirement system are their only source of income.
Unfortunately, the Harper government backed away from strengthening the CPP, after spending months talking about it. Instead, they have advanced only a private sector option that will do little more than RRSPs already offer. The Harper approach may be welcome for banks and insurance companies on Bay Street, but it fails to meet the needs of Canadian families.
A solid pension plan should be available to all, not just a luxury for a fortunate few. The most reliable and affordable way to achieve that is by building on the CPP that has served Canadians so well. The CPP provides enormous advantages to both employers and employees as it avoids the risk, complexity, and hidden management fees that too often drain retirement savings from plans that are administered by the private financial sector.
A Liberal government will work with the provinces and territories to enhance the CPP in two complementary ways. We will support a gradual increase in premiums and benefits under the core CPP to enhance the retirement security of all Canadians. In addition, a Liberal government will propose a new, voluntary supplement to the CPP called the Secure Retirement Option.
The Secure Retirement Option
The Secure Retirement Option will be available to any Canadian worker who wants it, with maximum flexibility built into the system. Under the Secure Retirement Option, Canadian workers can, for example, opt to save an additional 5-10% of their pay in a secure retirement fund backed by the CPP.
While millions of Canadians can’t afford the risk or cost of the stock market or RRSPs, the Secure Retirement Option will be a new, tax deductible public savings option for them. Contributions to a Secure Retirement Option will fall within the same limits that apply to RRSP contributions, to prevent upper income earners from accessing an unfair amount of tax sheltering.
Employers will also be able to contribute to a worker’s Secure Retirement Option account if they choose to, providing a low-cost pension plan option for companies, in particular small- and medium-sized enterprises for whom the expense of creating a pension plan would otherwise be prohibitive. Through the leveraging of the CPP, employers of all sizes would have access to a large, risk-pooled fund with very low administrative fees.
The Secure Retirement Option would also be fully portable, allowing workers to continue making contributions as they move from employer to employer.
A Liberal government will pursue this innovative approach to retirement security with provincial and territorial governments. Their agreement will be necessary to implement the Secure Retirement Option, since it would require changes to the CPP and the Québec Pension Plan (QPP).
A Liberal government will take additional steps to ensure that Canada’s pension regime protects society’s most vulnerable. We will boost the Guaranteed Income Supplement benefit for low-income seniors by $700 million per year, strengthening an important tool in the effort to eliminate poverty among seniors, especially women and seniors with disabilities.
Further, we will ensure that those collecting long-term disability benefits are given greater protection in the event that the company providing the benefit goes bankrupt. We will also create a “stranded pension agency” to give Canadian workers whose employers go bankrupt a chance to transfer their pensions into the CPP so that their assets can continue to grow through a secure investment vehicle, rather than having their pension placed in a low-return annuity.
Questions & Answers
Q: Do you need to work with the provinces to bring forward this plan?
A: Yes. Changes to the CPP require the approval of two-thirds of Canadian provinces representing two-thirds of the country’s population. Most provinces already support the gradual expansion of CPP benefits that Liberals are proposing. We will be happy to work with all provinces and territories to renew the negotiations to strengthen the CPP – negotiations that the Conservatives walked away from last year.
A gradual expansion of the CPP, in conjunction with our proposed voluntary supplement to the CPP, the Secure Retirement Option, is the simplest and most cost-effective means of improving the retirement security of Canadians
Q: How does this plan work with the Québec Pension Plan?
A: Quebec has its own public pension plan, the QPP, which operates separately from the CPP. As has been the case in other instances when the CPP has been reformed, we would work with Quebec to achieve similar goals as those outlined for the CPP, namely, to gradually increase the benefits in the base pension plan and to create a new Secure Retirement Option.
Q: What are the benefits of the Secure Retirement Option?
A: The Secure Retirement Option will offer Canadians a simple, portable, low-cost, and low-risk means of saving for retirement that builds on the trusted, publicly-run CPP. Many of the retirement savings options currently available to Canadians, as well as the Conservatives’ proposed Pooled Registered Pension Plan, are relatively high-cost and complicated options that involve significant savings risk and would benefit few Canadians.
While all Canadians could potentially benefit by contributing to a Secure Retirement Option, middle-class Canadians without a registered pension plan – which includes 75% of private sector workers – would find the SRO especially helpful in securing retirement income.
Q: How much will this initiative cost?
A: Because the Secure Retirement Option will be built on the low-cost CPP, it will also have low administrative costs. These low costs are passed along to Canadians in the form of higher investment returns.
The Secure Retirement Option will be funded entirely by voluntary contributions from Canadian workers and employers. Because these contributions will be tax-deductible, over time there will be a budgetary cost in term of foregone income tax revenue. We do not anticipate significant costs would be incurred in the first two years of a Liberal government, because the Secure Retirement Option would first have to be negotiated with the provinces and would have a ramp-up period following implementation.
Q: How is the amount I will receive from my Secure Retirement Option calculated?
A: The Secure Retirement Option is a defined contribution pension plan. The amount paid out will depend on contributions as well as investment returns.
The CPP, which the Secure Retirement Option will be built into, uses a very safe investment strategy, a strategy that has allowed the CPP to weather adverse economic events that were more difficult for individual Canadians to withstand within their RRSPs and other savings instruments. Like the CPP, the Secure Retirement Option would be managed to maximize returns without undue risk of loss. The size of the CPP allows for significant diversification in asset holdings which helps to significantly reduce risk. While no investment is 100% secure, the Secure Retirement Option will offer Canadians a very safe retirement savings vehicle relative to most available alternatives.
Q: Who will manage the money I contribute to a Secure Retirement Option account?
A: The funds in Secure Retirement Option accounts would be managed by the Canada Pension Plan Investment Board (CPPIB), the body that manages the CPP. The CPPIB is a crown corporation and professional investment management organization that was incorporated in 1997.
---
[i] Baldwin Consulting, October 2009, Research Study on the Canadian Retirement Income System: Final Report, p. 54, Figure 1
[ii]TD Economics, June 2010, Special Report: Retirement Income Security Reform: Rush Prudently, Don’t Run Blindly
“Canadians who work their whole lives to provide for their families deserve a secure retirement with pensions they can count on,” said Mr. Ignatieff, who made the announcement today alongside Vancouver Kingsway Liberal Candidate Wendy Yuan at a local small business – The Medicine Shoppe – whose employees currently do not have access to a pension plan.
“Stephen Harper chose to abandon the CPP and let five years pass by without delivering serious, much-needed pension reform,” he added. “Now, while he’s looking at complicated, higher-risk and higher-cost private options, Liberals are standing behind our trusted Canada Pension Plan to give families a reliable, simple and low-cost way to save.”
As part of our plan, a Liberal government will work with the provinces and territories to enhance the Canada Pension Plan (CPP) with:
A gradual expansion of the benefits provided by the CPP; and
A new Secure Retirement Option that will offer Canadians a simple, voluntary, tax-deductible savings option backed by the trusted, publicly-run CPP.
A Liberal government will also provide a $700-million annual boost to the Guaranteed Income Supplement to reduce poverty among seniors, especially women and seniors with disabilities.
To help workers left out in the cold when their employer goes bankrupt, Mr. Ignatieff also committed to greater protection for those collecting long-term disability benefits, and to create a Stranded Pension Agency to give Canadians a new and safe option to manage their private pensions after corporate bankruptcies.
“Fewer and fewer Canadians have access to a high-quality, employer-sponsored pension plan,” said Mr. Ignatieff. “The Harper approach may be welcome news for the banks and insurance companies on Bay Street, but a private option on its own fails to meet the needs of Canadian families.
“Enhancing the CPP provides enormous advantages to both employers and employees as it avoids the risk, complexity and hidden management fees that too often drain retirement savings from private financial sector plans,” he said.
Canadians aren’t saving enough for retirement, and three-quarters of Canadians in the private sector have no registered pension plan. The Harper Conservatives backed away from strengthening the CPP, after spending months talking about it. Instead, they have advanced a private sector option that offers little more than RRSPs already offer.
“We can strengthen families – without raising your taxes or making Canadians wait another five years – if we stop the Conservatives’ corporate giveaways and the billions they’re wasting on jets and jails. Now’s the time to focus on what really matters: giving every Canadian the tools to succeed in the years ahead.”
BACKGROUNDER
A Stronger Public Pension System for All Working Canadians
Canadians who work their whole lives to provide for their families deserve a secure and comfortable retirement.
Unfortunately, fewer and fewer Canadians have access to a high quality, employer-sponsored pension plan. 75% of all private sector employees do not have an employer pension plan(i).
Meanwhile, contribution levels to Registered Retirement Savings Plans (RRSPs) have not grown over the last decade. Many RRSPs have annual charges of 2% or more on assets. The costs, risk and complexity of RRSPs deter many Canadians from using them to provide for their retirement security.
About 20-25% of current retirees are not able to replace an adequate amount of their pre-retirement income. Forecasts of the personal savings rate and household balance sheets suggest that the ‘at-risk’ population of retirees will increase in coming decades(ii).
A Liberal government created the Canada Pension Plan (CPP) in 1965. Thanks to the work of Liberal governments in the 1990s, the CPP and Old Age Security are on sound financial footing. But for many seniors, these pillars of our retirement system are their only source of income.
Unfortunately, the Harper government backed away from strengthening the CPP, after spending months talking about it. Instead, they have advanced only a private sector option that will do little more than RRSPs already offer. The Harper approach may be welcome for banks and insurance companies on Bay Street, but it fails to meet the needs of Canadian families.
A solid pension plan should be available to all, not just a luxury for a fortunate few. The most reliable and affordable way to achieve that is by building on the CPP that has served Canadians so well. The CPP provides enormous advantages to both employers and employees as it avoids the risk, complexity, and hidden management fees that too often drain retirement savings from plans that are administered by the private financial sector.
A Liberal government will work with the provinces and territories to enhance the CPP in two complementary ways. We will support a gradual increase in premiums and benefits under the core CPP to enhance the retirement security of all Canadians. In addition, a Liberal government will propose a new, voluntary supplement to the CPP called the Secure Retirement Option.
The Secure Retirement Option
The Secure Retirement Option will be available to any Canadian worker who wants it, with maximum flexibility built into the system. Under the Secure Retirement Option, Canadian workers can, for example, opt to save an additional 5-10% of their pay in a secure retirement fund backed by the CPP.
While millions of Canadians can’t afford the risk or cost of the stock market or RRSPs, the Secure Retirement Option will be a new, tax deductible public savings option for them. Contributions to a Secure Retirement Option will fall within the same limits that apply to RRSP contributions, to prevent upper income earners from accessing an unfair amount of tax sheltering.
Employers will also be able to contribute to a worker’s Secure Retirement Option account if they choose to, providing a low-cost pension plan option for companies, in particular small- and medium-sized enterprises for whom the expense of creating a pension plan would otherwise be prohibitive. Through the leveraging of the CPP, employers of all sizes would have access to a large, risk-pooled fund with very low administrative fees.
The Secure Retirement Option would also be fully portable, allowing workers to continue making contributions as they move from employer to employer.
A Liberal government will pursue this innovative approach to retirement security with provincial and territorial governments. Their agreement will be necessary to implement the Secure Retirement Option, since it would require changes to the CPP and the Québec Pension Plan (QPP).
A Liberal government will take additional steps to ensure that Canada’s pension regime protects society’s most vulnerable. We will boost the Guaranteed Income Supplement benefit for low-income seniors by $700 million per year, strengthening an important tool in the effort to eliminate poverty among seniors, especially women and seniors with disabilities.
Further, we will ensure that those collecting long-term disability benefits are given greater protection in the event that the company providing the benefit goes bankrupt. We will also create a “stranded pension agency” to give Canadian workers whose employers go bankrupt a chance to transfer their pensions into the CPP so that their assets can continue to grow through a secure investment vehicle, rather than having their pension placed in a low-return annuity.
Questions & Answers
Q: Do you need to work with the provinces to bring forward this plan?
A: Yes. Changes to the CPP require the approval of two-thirds of Canadian provinces representing two-thirds of the country’s population. Most provinces already support the gradual expansion of CPP benefits that Liberals are proposing. We will be happy to work with all provinces and territories to renew the negotiations to strengthen the CPP – negotiations that the Conservatives walked away from last year.
A gradual expansion of the CPP, in conjunction with our proposed voluntary supplement to the CPP, the Secure Retirement Option, is the simplest and most cost-effective means of improving the retirement security of Canadians
Q: How does this plan work with the Québec Pension Plan?
A: Quebec has its own public pension plan, the QPP, which operates separately from the CPP. As has been the case in other instances when the CPP has been reformed, we would work with Quebec to achieve similar goals as those outlined for the CPP, namely, to gradually increase the benefits in the base pension plan and to create a new Secure Retirement Option.
Q: What are the benefits of the Secure Retirement Option?
A: The Secure Retirement Option will offer Canadians a simple, portable, low-cost, and low-risk means of saving for retirement that builds on the trusted, publicly-run CPP. Many of the retirement savings options currently available to Canadians, as well as the Conservatives’ proposed Pooled Registered Pension Plan, are relatively high-cost and complicated options that involve significant savings risk and would benefit few Canadians.
While all Canadians could potentially benefit by contributing to a Secure Retirement Option, middle-class Canadians without a registered pension plan – which includes 75% of private sector workers – would find the SRO especially helpful in securing retirement income.
Q: How much will this initiative cost?
A: Because the Secure Retirement Option will be built on the low-cost CPP, it will also have low administrative costs. These low costs are passed along to Canadians in the form of higher investment returns.
The Secure Retirement Option will be funded entirely by voluntary contributions from Canadian workers and employers. Because these contributions will be tax-deductible, over time there will be a budgetary cost in term of foregone income tax revenue. We do not anticipate significant costs would be incurred in the first two years of a Liberal government, because the Secure Retirement Option would first have to be negotiated with the provinces and would have a ramp-up period following implementation.
Q: How is the amount I will receive from my Secure Retirement Option calculated?
A: The Secure Retirement Option is a defined contribution pension plan. The amount paid out will depend on contributions as well as investment returns.
The CPP, which the Secure Retirement Option will be built into, uses a very safe investment strategy, a strategy that has allowed the CPP to weather adverse economic events that were more difficult for individual Canadians to withstand within their RRSPs and other savings instruments. Like the CPP, the Secure Retirement Option would be managed to maximize returns without undue risk of loss. The size of the CPP allows for significant diversification in asset holdings which helps to significantly reduce risk. While no investment is 100% secure, the Secure Retirement Option will offer Canadians a very safe retirement savings vehicle relative to most available alternatives.
Q: Who will manage the money I contribute to a Secure Retirement Option account?
A: The funds in Secure Retirement Option accounts would be managed by the Canada Pension Plan Investment Board (CPPIB), the body that manages the CPP. The CPPIB is a crown corporation and professional investment management organization that was incorporated in 1997.
---
[i] Baldwin Consulting, October 2009, Research Study on the Canadian Retirement Income System: Final Report, p. 54, Figure 1
[ii]TD Economics, June 2010, Special Report: Retirement Income Security Reform: Rush Prudently, Don’t Run Blindly
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