Re: IE Savings plans need to be mandatory, Editorial, July 2015
The life and health insurance industry takes exception to how the editorial in the July 2015 issue perpetuates the myths that most Canadians are not saving enough for retirement; and that mandating additional savings across the board through the Canada Pension Plan is the answer.
Research has consistently shown that most Canadians are, in fact, on track to maintain their standard of living in retirement. The most comprehensive report, released earlier this year by McKinsey & Co., shows robust retirement readiness with 83% of households on track for retirement. The ‘at risk’ group that is not saving enough are mid-income Canadians ($40,000-$100,000) who do not have access to workplace retirement plans, or do not save enough through them. It is important to recognize the narrowness of this retirement gap and develop targeted solutions that are fair for all Canadians. The problem with mandating on a universal basis, as your editorial promotes, is that it penalizes those with sufficient savings, as well as lower-income Canadians who cannot afford further deductions from their current earnings and will be supported in retirement by existing government benefits.
An example of a targeted solution is pooled registered pension plans (PRPPs), which have been introduced in six provinces and provide a simple, easy to administer workplace plan. PRPPs tap into leading-edge behavioural economics research and use “smart defaults”, such as automatic enrolment, to nudge employees into participation. Experience in other jurisdictions, such as the U.S. and the U.K., has found that using automatic enrolment with an opt-out feature promotes the public policy objective of increasing retirement savings for those who need them the most, while preserving consumer choice. In the U.S., about 85% of employees with this type of arrangement choose to stay in these plans.
Frank Swedlove,
President and CEO,
Canadian Life and Health Insurance Association