The Canadian pension system appears sound, but some reforms should be considered before the baby boom generation retires, according to a new report released by the International Monetary Fund.

The reforms suggested by the IMF include: boosting RRSP contribution limits; introducing new savings vehicles; and increasing the retirement age.

“Consideration could be given to strengthening the private pension pillar, including by reviewing the structure of retirement saving vehicles and strengthening governance of corporate pension schemes. Amendments to the public pension system could also assist in fostering labor market participation among older workers, boosting pension saving, and relieving impending fiscal pressures,” it says. “Moreover, over the longer term, care will be needed to ensure that the support provided by the basic public pension system is kept at adequate levels to avoid a rise in old-age poverty.”

The IMF report says that recent moves to increase RRSP contribution limits appears appropriate. “Against the background of increased labour market mobility and a trend away from lifetime attachment to a single employer, gradual increases in RRSP contribution limits, at least in line with incomes and other pension parameters, provide room for personal saving to increase, especially for those not covered by RPPs.” It also stresses that the immediate fiscal implications of rising contribution limits would likely be minimal.

It also suggests that tax-prepaid savings plans, “could usefully supplement existing private savings plans.” TPSPs would not provide an immediate deduction from income tax, but would enable tax-free accumulation of capital gains and benefit payments as well as tax-exempt withdrawals.

As for existing plans, the IMF says that safeguarding the soundness of corporate pension plans remains a key priority. It notes that OSFI is already watching plans more closely, but the quality of provincial supervision is not clear. “These differences suggest that there exists a potential for closer harmonization of federal-provincial regulation and supervision, aimed at ensuring uniform adoption of best practices, improving system-wide transparency, and ensuring a more efficient use of supervisory resources.” It also calls for an increase in the permissible surplus of pension funds (currently two years worth of pension contributions, or 20% of liabilities) saying this could help encourage full funding.

The report also calls for reforms to further reduce incentives for early retirement in the CPP and to increase the statutory retirement age. “To ensure political acceptance and mitigate the impact on workers close to retirement age, any increase in the retirement age would need to be gradual and phased in over a longer time frame,” it says.