Canada’s long-simmering retirement pension debate boiled over on Thursday, as the federal government unveiled a framework for a new benefit plan.
Kevin Sorenson, the federal minister of state for finance, announced the proposal for Target Benefit Plans during a keynote address to the Economic Club of Canada.
“Target Benefit Plans are a new, innovative proposal that will help support affordable and sustainable pensions for Canadians,” he said in his speech to a business crowd at the One King West hotel.
These plans would offer targeted, as opposed to guaranteed, benefits, and contributions would be adjustable within a specified range, the government said.
They would be available to employees of Crown corporations and federally regulated companies including those in telecommunications, airlines and banks.
Ottawa is looking for feedback on the proposal from the public for the next 60 days.
Governments should follow the federal example of focusing on encouraging job growth and getting back to balanced budgets, Sorenson said in his speech.
“Ontario’s risky pension scheme would have detrimental effects on the economy today and would not provide a fully-funded return for forty years,” he told the crowd.
About one-third of working Canadians are covered by employer plans.
A growing chorus of economists and financial planning experts is warning that Canadians, particularly in the middle class, are not saving enough for retirement and could face a sharply reduced standard of living after they leave the workforce.
Ottawa has rejected calls to expand the Canada Pension Plan as a way to enhance retirement savings for all Canadians.
Ontario premier Kathleen Wynne has vowed that the province will go it alone with a “top-up” pension plan. Details are expected to be announced in the Ontario budget on May 1.
Meanwhile, a study released Thursday by the Fraser Institute says there is no looming retirement income crisis in Canada.
The study argues that analysts, activists and politicians who advocate for an expanded CPP rely on faulty assumptions and overlook retirement resources available to all Canadians.
Its author, Philip Cross, former chief economic analyst for Statistics Canada, said Canadians hold trillions of dollars in real estate and other assets that can help provide support in retirement.
For instance, by the end of 2011, 8.2 million Canadians, about one-third of tax filers, had opened a Tax-Free Savings Account. Individuals earning less than $80,000 account for the majority of TFSA holders.
Canadians now hold more than $62 billion in TFSAs.
Cross also points out that, on average, Canadians are waiting longer to retire. One in four Canadians ages 65 to 70 now remains in the workforce. That’s up from one in eight in 2001.
The delay allows more time to accumulate savings and postpones the need to draw down savings, he argues.
The paper stands in sharp contrast to a study released Wednesday by David Dodge, former head of the Bank of Canada, which warns that Canadians households need to save more for their retirement years.
The paper, written with Richard Dion, senior business adviser at Bennett Jones LLP, supports Ontario’s push for an enhanced Canada Pension Plan.