A Stronger Public Pension System for 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. In fact, in 2008 75 percent of all private sector employees did not have a registered pension plan. Meanwhile, contribution levels to Registered Retirement Savings Plans have not grown over the last decade, with only 1 in 4 taxpayers actually making RRSP contributions. Many RRSPs have annual charges of 2 percent or more on assets. The costs, risk and complexity of RRSPs deter many Canadians from using them to provide for their retirement security.

Thanks to the work of the Liberal government in the 1990s, the Canada Pension Plan (CPP) and Old Age Security (OAS) 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 financial services industry has an important role to play for investors who can afford the fees and tolerate the risk, but a private option on its own is inadequate. The Harper approach is welcome on Bay Street, but 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 enhancing the trusted and cost-efficient 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 Canada Pension Plan in two complementary ways. We will support a gradual increase of the defined 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 (SRO).

The SRO would be available to any Canadian worker who wants it, with maximum flexibility built in. Entirely voluntary, Canadians could, for example, opt to save an additional 5-10 percent of their pay in a secure retirement fund backed by the CPP. Millions of Canadians can’t afford the risk or cost of the stock market or RRSPs. This is an option for them.

Contributions to an SRO would fall within the same limits that apply to RRSP contributions, to prevent upper income earners from accessing an unfair amount of tax sheltering.

Employers would have the option to also contribute to their employees’ SRO accounts, providing a low-cost pension plan for companies, particularly small and medium sized businesses for whom the expense of creating a pension plan would otherwise be prohibitive. By leveraging the CPP, employers of all sizes would have access to a large, risk-pooled fund with very low administrative fees.

The SRO 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 collaboratively with provincial and territorial governments. Their agreement will be required to make the necessary changes to the Canada Pension Plan and the Quebec Pension Plan.

A Liberal government will take additional steps to ensure that Canada’s pension regime protects society’s most vulnerable. 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. In the event that an employer goes bankrupt, this agency will give Canadian workers a chance to transfer their pensions into the Canada Pension Plan so that their assets can continue to grow through a secure investment vehicle, rather than having their pension simply placed in a low-return annuity.

Supporting Low-Income Seniors

Together, the Old Age Security pension and Guaranteed Income Supplement (GIS) provide low-income seniors with a fully indexed benefit that ensures a basic level of income throughout their retirement years. Still, an increasing number are struggling in poverty. A Liberal government, and indeed most Canadians, cannot accept this without taking serious action.

In its failed election Budget, the Harper Conservatives took a disappointingly small step, but a Liberal government will go much further. We will boost the GIS benefit for low-income seniors by $700 million per year, strengthening an important tool in the effort to eliminate poverty among seniors, especially older women and seniors with disabilities.

The Secure Retirement Option

The Secure Retirement Option is a new public option, within the CPP, that would change the outlook for those Canadians who currently do not have a pension plan. It would allow them to avoid the risk, complexity and hidden management fees of RRSPs. A two-person household, with earnings that start at $35,000 per year, and rise to $65,000 per year over time would need to have annual pension of $14,000 on top of the existing Canada Pension Plan and Old Age Security to secure a pension worth 60 percent of their household income at retirement. A voluntary six percent contribution rate from gross pay over the working years to an SRO account would put the household on track to achieve that goal. Participating workers who contribute more, or those whose employers provide additional contributions, would receive an even more generous pension.