Canada’s Retirement Income System: Issues and Options Ontario’s Public Consultations on Canada’s Retirement Income System Ottawa, Ontario May 6, 2010 Printed On: 15/07/2015 9:49 PM Prepared by: Ontario Ministry of Finance

2 Canada’s Retirement Income System: “The Three Pillars Approach”  Canada’s pension system consists of three pillars: 1.Universal government benefits for seniors (PILLAR 1) 2.Canada Pension Plan (PILLAR 2) 3.Employment Pension Plans and Individual Retirement Savings (PILLAR 3)

3 Canada’s Retirement Income System among OECD Countries “Old-age income safety-nets in Canada are amongst the highest in the OECD, helping Canada have one of the lowest poverty levels relative to average earnings.” Figure 2.5, OECD Pensions at a Glance, 2009

4 PILLAR 1: Universal Government Benefits  Federal seniors benefits include: 1.Old Age Security (OAS) 2.Guaranteed Income Supplement (GIS) 3.Spouses Allowance (SPA) Ontario (and other provinces and territories) supplement federal benefits to low-income seniors

5 PILLAR 2: Canada Pension Plan  Federal government and Provinces are joint stewards of the CPP  Provides retirement, survivor, and disability benefits  Universal coverage of all workers in all industries  Employees and employers make equal contributions (4.95% each – 9.9% combined) on earnings up to annual maximum of $47,200 (2010)  Defined Benefit – up to 25% of the average wage  Fully portable  Inflation-indexed to CPI  Actuarially sound for the next 75 years  CPPIB invests assets of $123.9 billion

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7 PILLAR 3: Employment Pension Plans (EPPs/RPPs) & Individual Retirement Savings 1.Employment Pension Plans (EPPs/RPPs)  Voluntary plans sponsored by an employer or union  Defined Benefit (DB), Defined Contribution (DC) or Hybrid  Maximum DB pension accrual is $2,494 per year of service (2010)  Subject to federal or provincial pension benefits standards legislation  Contributions are tax deductible and investment income is tax deferred  Benefits are taxable  Traditional DB coverage has been gradually declining

8 Ontario Employees Covered by DB Pensions Sources: Statistics Canada, Pension Plans in Canada and Labour Force Survey. Per Cent

9 PILLAR 3: EPPs/RPPs and Individual Retirement Savings 2.Registered Retirement Savings Plans (RRSPs) / Registered Retirement Income Funds (RRIFs)  Contributions to RRSPs are tax deductible  RRSP withdrawals and RRIF income payments are taxable  In 2006, federal RRSP tax expenditure was estimated at $10 billion (plus Provincial tax expenditures)

10 PILLAR 3: EPPs/RPPs and Individual Retirement Savings 3. Other Savings  Total savings rates in Canada are very low by historical standards  Average family savings of $1,332 per year  Savings are accumulated and then dispensed over a person’s life cycle  Savings can be held in non-pension financial assets (including the new TFSA) and non- financial assets

11 Canada’s Retirement Income System: “The Three Pillars Approach”

12 Canadian Retirement Income System: Strengths Strengths  RIS has worked well for many Canadians  Dramatic declines in senior poverty since 1970s  Diversity of the RIS is a strength

13 Canadian Retirement Income System: Challenges Challenges  Market downturn in 2008 and low long-term interest rates  Declining coverage in traditional pension plans  Pillar 2 (CPP/QPP) provides lower benefits than in most other developed countries  Questions about the ability of the existing system to deliver for tomorrow’s seniors  Research suggests that 1/4 to 1/3 of Canadians may not be savings enough for their future retirement.

14 Canadian Retirement Income System: Defining the Challenge  Ontario research identifies the challenge for tomorrow’s seniors: “The status quo is an option. However, it is an option that may leave a significant minority of people with moderate to high earnings facing a decline in their standard of living in retirement, and force many people to rely on sub-optimal pension and retirement savings institutions.” - Bob Baldwin “There is… some evidence that not all working Canadians are saving enough… Further study is needed to determine the degree of saving inadequacy. - Jack Mintz

15 Canadian Retirement Income System: Government Response Expert Commission on Pensions  Review funding of DB pension plans and related matters  Bill 236, Pension Benefits Amendment Act, 2010  First major pension reform in Ontario in over 20 years  Premier McGuinty calls for National Pension Summit  FPT Working Group on Retirement Income Adequacy  Ontario research by Bob Baldwin  Federal research directed by Jack Mintz

16 Canadian Retirement Income System: Key Options  Major stakeholder proposals for reform: 1.Expansion of public pensions (CPP) 2.Supplementary DC pension plans 3.Pension Innovation 4.Reforms to Tax Assistance

17 Key Questions for Discussion  Why do we need to strengthen Canada’s retirement income system?  In your view what research or evidence demonstrates that people are not saving enough for retirement?  How would you define “enough”, and how much weight should be placed on personal choice?  What are some of the possible options or combination of options that the government should consider in strengthening Canada’s retirement income system for tomorrow’s seniors?  How would your preferred options or proposal be implemented?  How would your proposal work?  What do you think it might cost?  How would costs be allocated among employees, employers, etc.?  Would it be voluntary (e.g. opt-out) or mandatory?  How might other stakeholders be affected?