The pension woes of troubled firms such as Nortel Networks Corp. and General Motors of Canada Ltd. have put the spotlight squarely on retirement savings.

And, based on what we’ve heard over the past few weeks, you might think that Canada’s overall pension system is in a terrible mess and that vast numbers of pensioners will be destitute and homeless.

But that’s hardly the whole picture. There are flaws in our pension system — no question — and the recession has exacerbated many of these. But we need to stand back and get some perspective. Canada’s overall pension system is solid compared with those in 11 other industrialized countries, according to the inaugural Melbourne Mercer global pension index, which ranks retirement income systems based on adequacy, sustainability and integrity. However, no country was classed as having a Grade A system, which suggests even advanced pension models need some improvement.

Canada’s pension system has three tiers. The first, composed of old-age security and the guaranteed income supplement, is taxpayer funded. The second is the Canada Pension Plan, which is funded by employer and employee contributions. Both of these programs, designed to provide a very modest base of retirement income, are healthy, and were substantially strengthened by reforms to the CPP in the 1990s.

What is causing concern is the third tier, which includes workplace pension plans and RRSPs. First, a large and growing proportion — almost 60% — of workers don’t have company plans. Second, company defined-benefit plans have been hammered by the recession, and many have large unfunded liabilities, which companies are required to deal with. Firms that have gone belly up while having an underfunded pension plan are a particular worry.

Many companies have also been switching from DB plans to lower-cost, easier-to-run defined-contribution plans. DC plans don’t provide the guarantee of a pension and transfer the investment risk to employees. Third, equities-based RRSPs have also been clobbered, although stock markets have shown signs of recovery in recent months.

So, problems there are. But there are a variety of proposals to boost company plans and to provide coverage for workers who don’t have pensions. And, apparently, there’s political will at federal and provincial government levels to deal with this issue.

The proposals range from strengthening the CPP or developing a new supplementary national plan to include workers without company plans to easing current rules to help companies create pension plans. Advocis, for instance, says steps should be taken to foster employer-sponsored DC plans. There are discussions about “target” benefit plans, hybrid arrangements that would ease corporate funding requirements and offer a target pension benefit rather than the guarantee of a specific amount for plan participants.

Advisors have a large role to play in ensuring their clients have adequate retirement income. They can become involved in the national debate over improving coverage, as Advocis has.

At the individual level, there is a need to ensure that clients understand the company plans they may have, and that if they deploy their retirement funds in equities, they do so with the knowledge that markets can be extremely cruel. Prevailing wisdom is that equities should play a larger role in providing retirement income these days, partly because of longer retirements. Is it time for advisors to rethink that strategy?

So, is the system in ruins? No, but parts do need reform — and it looks like discussions are on the right track.

Tracy LeMay, Editor