There’s a lot of discussion in the news about a Supplemental Pension Plan. Late last year the provinces of Alberta and British Columbia announced a pension plan initiative which would allow employees not currently part of a pension plan access to an alternative.
“Alberta/British Columbia Pension Plan (ABC Plan)
The ABC Plan will be a simple defined contribution design with matching employee and employer contribution rates, immediate vesting of contributions, and flexibility to accommodate unmatched employer or employee contributions. All employers and workers would be automatically enrolled in the plan, but would be able to opt out of participation. It is recommended that governance and administration of the ABC Plan be kept at arm’s length from government, with an independent board of governors overseeing the plan. Rather than permitting members and employers to direct investment of assets, the Report recommends that investment of assets be subject to policy direction from the board of governors.”(1)
Currently the Canada Pension Plan (CPP) aims to replace only 25% of earnings at retirement. CPP is funded by both the employee and employer based on a contribution of 4.95% of earnings up to the maximum pensionable earnings (there is an exemption on the first $3,500 of earnings per year). Each year CPP revises the maximum pensionable earnings; for 2009 the maximum is $46,300 – which means that for more than half the population the CPP payment at retirement is actually a lot less than 25%. The current maximum monthly benefit for 2009 payable at age 65 is only $908.75. Most employees do not know this. They may realize that the CPP only pays a small portion of their retirement income needs but ask someone exactly how much they will receive and the majority won’t have a clue.
Other programs such as the Guaranteed Income Supplement (GIS) and the Old Age Security (OAS) are even more confusing and complicated in their calculations and most individuals that have any other types of retirement savings probably won’t qualify for any monies at all.
Iris Evans, Alberta’s finance minister, says a national supplemental pension plan could be a reality in the next two to three years (2). Union leaders believe that the supplemental pension plan is flawed and should be abandoned in favor of comprehensive reform of the Canada Pension Plan (CPP) and Old Age Security (OAS) (3)
What we haven’t heard in the news is exactly what employees and individual employers think. One would hope that any vehicle that gave employees the chance to save additional funds for retirement would be beneficial to all. Waiting for CPP and OAS reform? Most of us will probably retire before that happens to any significant degree. If a national supplemental plan was developed at least we would spread the risk – putting all our eggs in the CPP basket would definitely make me uncomfortable.
What do you think?
(1) Mercer December 18, 2008 http://www.mercer.ca/
(2) Pensions and Benefits Monitor, Daily Benefits and Pensions News Alerts, Monday, June 22, 2009 http://www.bpmmagazine.com/
(3) Benefits Canada, Friday, June 19, 2009 http://www.benefitscanada.com