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Pension expert proposes fix for Canada's shortfall

The current "jumble" of supplemental pension options is failing millions of Canadian workers and must be revamped into a system that will allow them to build better retirement nest eggs, says Keith Ambachtsheer, one of the country's leading authoriti

The current "jumble" of supplemental pension options is failing millions of Canadian workers and must be revamped into a system that will allow them to build better retirement nest eggs, says Keith Ambachtsheer, one of the country's leading authorities on pensions.

Ambachtsheer, director of the Rotman International Centre for Pension Management at the University of Toronto, says federal and provincial political leaders must come up with a concrete plan.

"The time has come to turn our current supplemental pensions jumble into a coherent system with a clear goal and a clear plan to achieve it," he said in a report released Thursday.

"The financial well-being of Canadians in the 21st century depends on it."

His call to action comes as federal and provincial finance ministers prepare for a meeting next month in Whitehorse that some participants hope will result in the players agreeing to fashion a national approach to resolving what many see as a mushrooming retirement income crisis.

Ambachtsheer's report says an estimated 3.8 million middle-income workers without workplace pension plans are at the greatest risk of not having enough retirement income to satisfactorily supplement what they will get from Old Age Security and the Canada/Quebec Pension Plans.

"There is evidence that many of these workers will not be able to maintain their desired standard of living when they stop working 10 or 20 years from now," the report said.

Only about one-third of working Canadians, for example, have invested in RRSPs or other retirement savings vehicles to supplement the public pension system.

Ambachtsheer cited the middle-income group -- earning between $30,000 and $125,000 -- as the "critical" group to bear in mind when redesigning the supplemental pension system.

Ambachtsheer advocates the creation of a national voluntary supplementary pension plan, which would set an inflation-indexed income replacement target of 60% for middle-income workers. All employers and workers without a workplace pension plan would be automatically enrolled, but they could choose to opt out.

Ambachtsheer's proposal for a "Canada Supplementary Pension Plan" envisions joint federal-provincial involvement, but separate provincial initiatives are portrayed as feasible.

Several provinces say they are keen on pursuing a still-undefined national plan to supplement the OAS and CPP/QPP, and they hope the meeting in Whitehorse will make progress in that direction.

The governments of B.C. and Alberta, which are ahead of the others on exploring provincial supplemental pension plans, say they would prefer a national approach, but they are prepared to go it alone if necessary.

The Harper government says it wants to wait until it sees the results of ongoing research into the adequacy of Canadians' retirement income, and how it compared to other countries.

Analysts say the recession has shone a light on longstanding gaps in a system where only one in four workers in the private sector belong to a pension plan of some sort.

A 65-year-old Canadian with maximum government pension benefits, but no other income sources, could receive $19,776. However, a typical recipient, would receive only half the maximum CPP or Quebec Pension Plan total, thus reducing the annual amount to $16,760.

Even those with workplace pension plans are on edge, wondering whether their expected pensions will shrink or disappear if their employer goes bankrupt or gets into financial difficulties.

The Canadian Institute of Actuaries concluded in a study released last month "two-thirds of Canadians who plan to retire in 2030 may not be saving at levels required to meet household expenses in retirement."

Better preparation for retirement has become even more crucial because the retirees of today and tomorrow "expect to live longer with a much more active lifestyle than previous generations," the study said.

Ambachtsheer prepared the report for the Benefactors Lecture series operated by the C.D. Howe Institute.