The Harper government has asked the country to take an interest in target-benefit pension plans as a solution to the retirement-saving problem. Such a device may be of use to a few workers and employers, but it is no substitute for expansion of the Canada Pension Plan.
Kevin Sorenson, the minister of state for finance, announced national consultations on the government's idea of writing new provisions into Parliament's Pension Benefits Standards Act, which regulates pensions in railways, airlines, banks and the rest of the federal labour jurisdiction. Pension standards in all other industries are regulated by each province.
The company pension plans now available in the federal jurisdiction have either defined benefits (the employer has to cover the difference if the plan runs short of money) or else defined contributions (the benefits are scaled back if the plan runs short). A large risk is borne by the employer in one kind and by the pension-plan members in the other kind. The government is proposing a third kind of plan, the target benefits plan, in which the representatives of the company and the plan members have to get together and agree what to do if the money runs short.
Retirement saving is a national problem because company pensions are now rare in Canada outside government service. Three-quarters of private-sector employees have no company pension plan. Typically, they have no other retirement savings, either. They will have only their Canada Pension Plan benefits and the old age pension to finance their retirement years. A great many people now in their 40s and 50s will live close to the poverty line in their late years. Rather than condemn old people to live in squalor, the governments of those years will have to tax a shrinking number of working people to top up the incomes of a growing number of retired people. A better solution is retirement saving by people who are now working.
The provincial governments want Ottawa to expand the Canada Pension Plan so contributions and benefits would be increased. The Harper government refused because the cost of increased contributions would be hard on some employers and would slow economic recovery in the near term. The target benefit plan is offered as a voluntary solution.
The solution, however, falls far short of the problem. It can help only the tiny part of the workforce that lies in federal jurisdiction and lacks pension coverage. It leaves workers' retirement incomes at the mercy of adverse events in much the same way as defined-contribution plans.
As a voluntary system, it leaves employers free to offer a plan they can afford and it leaves workers free to decide, as they hire on with a company, whether the wages and benefits they are offered are good enough. But as a practical matter, a free market in pension plans cannot work well because workers are in no position to evaluate the plan they are offered. You can't readily tell if a plan is adequate until you start drawing benefits -- and then it's too late to do anything about it.
There is probably no harm in writing provisions for target-benefit plans into the federal pension-standards law, but it's a bandage on a wooden leg. Mr. Sorenson and his colleagues are inviting the nation to debate the shape and colour of the bandage. They are studiously avoiding the inadequacy of Canadians' retirement savings. They are sending the great majority of employed Canadians toward years of post-retirement poverty. They are condemning the next generation to accept tax increases to alleviate the poverty of retirees.
A better solution is available. The Canada and Quebec pension plans operate efficiently and serve the entire labour force. The provincial governments, which control the public plans jointly with the federal government, are already on board for expansion. A series of small, staged contribution increases with long advance notice should allow companies to adjust.