More support for defined-contribution plans needed
September 17, 2009 — TORONTO – Advocis, The Financial Advisors Association of Canada, released a commissioned report today that concludes that there must be more opportunities for Canadians to participate in pension plans. And the most effective way to encourage higher participation by Canadians is fostering employer-sponsored defined contribution (DC) pension plans.
“We are in the middle of a perfect storm. Only one-third of Canadian employees are in a pension plan and participation is declining. Canadians’ retirement savings will inadequately finance their retirement at a time when life expectancy is increasing. There is a tidal wave of baby boomers reaching retirement who are living longer and on much less,” said Greg Pollock, president and CEO of Advocis, The Financial Advisors Association of Canada. “Yet there are many immediate steps governments can take to make employer-sponsored defined contribution plans more attractive to small and medium sized businesses and ultimately more accessible to their employees.”
The report, Encouraging Small and Medium Sized Firms To Participate in Pension Plans, says that in recent decades there has been a movement away from employers’ participation in defined benefit (DB) pension plans and towards defined contribution plans. Defined contribution plans are a more viable option for both employers and employees, because DC plans are:
Advocis, The Financial Advisors Association of Canada, is the oldest and largest voluntary membership association of financial advisors and planners in Canada. With more than 10,000 advisors and planners in 43 chapters across Canada, Advocis members provide financial advice, product service and employee benefit planning to millions of Canadians in a number of areas including estate and retirement planning, wealth management, risk management and tax planning. For more information about Advocis, visit www.advocis.ca.
- affordable and costs can be controlled;
- not contingent on the accumulation of years of service with an employer;
- portable and do not deter job mobility; and,
- flexible and can accommodate non-standard work arrangements and postponed or phased-in retirement.
The report also outlines how public policymakers can eliminate the barriers and create incentives for more employers to sponsor DC plans. The report recommends:
- Improving the regulatory environment for DC plans;
- Regulations, particularly around locking-in rules, should be harmonized between provinces and federally to reduce complexities and costs for employers and employees;
- Mandatory enrolment for employees, with opting out provisions, as the default;
- Tax changes including:
- Increasing the age limit for contributions from 71 to 73;
- Determining contribution to retirement savings plans based on a life-time average, to take into account fluctuating incomes; and
- Allowing past service contributions up to the limit of the employee’s unused RRSP contribution room, to make up for years with interrupted employment histories.
“Clearly, the message is something has to change. This report makes a significant contribution to an important dialogue on the pension crisis,” continued Mr. Pollock. “Canadians need to have the tools to plan for their retirement.”
About Advocis
Advocis, The Financial Advisors Association of Canada, is the oldest and largest voluntary membership association of financial advisors and planners in Canada. With more than 10,000 advisors and planners in 43 chapters across Canada, Advocis members provide financial advice, product service and employee benefit planning to millions of Canadians in a number of areas including estate and retirement planning, wealth management, risk management and tax planning. For more information about Advocis, visit www.advocis.ca.
