ALTHOUGH A SIGNIFICANT minority of Canadians have not saved enough for retirement, leading to warnings of a retirement or pension crisis, the answer is not the voluntary, expanded Canada Pension Plan (CPP) floated by the federal Conservative government this past spring, says a submission to the government from the Investment Funds Institute of Canada (IFIC).

Toronto-based IFIC’s comment argues that a beefed up CPP is not required. Instead, IFIC proposes, targeted solutions should be used to encourage retirement saving for those unprepared for retirement.

IFIC’s comment contends that pension shortfalls today are not restricted to low-income Canadians. The comment cites research by McKinsey & Co. that found that 17% of households that are fairly well off will face “materially less disposable income” in retirement unless they start saving or save more.

“What we have been saying all along is we know that we have a well-balanced and effective structure,” says Joanne De Laurentiis, president and CEO of IFIC. “We also know where the problem lies – and it is that 17% of households that McKinsey has identified. So, we know where the problem is, and we also know who those people are. We know that they are middle-aged, they are upper middle/middle class and they just aren’t saving enough.”

IFIC’s comment argues that the solution to undersaving among this middle-class group should be found in the workplace, not in Ottawa.

IFIC’s comment recommends making better use of existing tools that are underutilized.

The comment notes that participation in most workplace retirement savings plans, other than defined-benefit (DB) pension plans, is voluntary.

The government could help to close the pension gap for many in that “mushy middle” by increasing participation in voluntary group RRSPs and tax-free savings accounts (TFSAs), doing so by using “proven behavioural techniques.” These techniques include automatic enrolment and automatic escalation, backed up by “targeted public awareness campaigns” to encourage this demographic to save more.

“These are proven techniques that do change behaviour in a positive way,” De Laurentiis says. She adds that Australia, the U.K. and Chile use such programs.

IFIC’s position is shared by the Financial Advisors Association of Canada (a.k.a. Advocis), which represents about 11,000 financial advisors across Canada.

“When you modify people’s behaviour in this way, they respond,” says Greg Pollock, president and CEO of Advocis. “Focus on the existing programs and let’s encourage people to understand them and incorporate them into their retirement planning activity.”

Pollock notes the billions of dollars worth of unused space in Canadians’ RRSPs and points out that RRSPs are not the best savings vehicles for all Canadians.

Pollock believes part of the solution lies in advice: “All of this requires, in my mind, the assistance and the advice of financial advisors who can assist individuals in the cases that they face.”

IFIC’s submission also asks Ottawa to make changes to the rules for group RRSPs and group TFSAs that would make these vehicles more like pensions by allowing employer contributions to be locked in and enabling employer contributions to be exempt from payroll taxes, as is currently the case for DB and defined-contribution plans.

IFIC’s submission also proposes that the feds mandate that every employer offer a retirement savings program with locked-in features while keeping employer matching contributions voluntary, as they are now, to avoid placing undue financial burden on smaller employers.

De Laurentiis adds that automatic escalation already exists for many organizations with group RRSPs, including IFIC.

“For the first couple of years of employment,” she says, “the matching percentage might be 2% or 3%. And when you are here [at IFIC] for five years, it automatically escalates. Now, the employee has the option whether they participate in that [program]. We would say, ‘Don’t make that optional; make it mandatory’.”

IFIC also hopes that the new pooled registered pension plan, when it becomes available across the country, will stimulate more workplace-administered savings programs.

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