Tuesday, December 21, 2010

The Pension Gift

These are happy days for insurers and trust companies. On December 20, 2010 Canada's Finance Ministers have decided to introduce a private sector solution to solve Canada's pension problems. Before, the choices were narrowing: either expand the CPP (favored by people) or turn to the private sector (favored by business). The Ministers chose the latter. The question now is what will the choice mean for Canadians' retirement savings?

The choice does very little for existing pension plans. Despite years of study, reports, hearings and consultations, and a clear need for change, the governments have once again postponed addressing the fundamental problems affecting employer pension plans. There is no harmonization between regulatory jurisdictions, nor any effort made to solve security issues for members.

Saving rates are low, and not getting better. But the Ministers did not want to deal with this head on. The excuse is the economy and a fragile recovery. But as they wait for better times, the governments have failed to notice that the business of rewarding employees has changed. Companies no longer support the expansion and creation of employer-sponsored pension plans. Companies that weren't involved before are not going to start now. And, on cue, the government has made plan participation optional.

Flaherty's Pooled Registered Pension Plans (PRPPs) are false promises. They are supported only by the financial industry, who see a new money making scheme, and by businesses, who know they wont have to pay. Polls conducted on line by the CBC, CTV(Calgary) and the Globe & Mail all indicate that Flaherty has made the wrong choice. The Globe & Mail poll has 83% favoring the CPP choice. Numerous other polls say the same. People simply do not believe that the financial industry has their interests at heart and are not willing to trust them with their money. This lack of trust will not easily be overcome.

PRPPs wont resolve the country’s retirement income issues. Flaherty has done nothing to curb the financial industry's fees and administrative costs - among the highest in the developed world. He has not tackled the insurance industry's distribution problems and lack of control over its sales force. Nor has he signaled an equalization of saving rates between private and public employers' pension plans.

So we are left waiting for the next round of study, reports, hearings and consultations.