Thank you. It's good to be here this morning.
Fifteen years ago in Canada we reformed pillars one and two of our retirement income system, OAS/GIS and CPP/QPP. Fifteen years later it's time to do something else. It's now time to move on to pillar three, which is the supplementary part of the system. It basically breaks down into two components: registered pension plans on the one hand and individual RRSPs on the other.
It's good to just get a grip on the numbers. We have about 15 million workers in the workforce, which breaks down nicely into three five million parts. There's a low-income earner part, which is largely taken care of by the reforms in OAS and CPP. The other 10 million break down into two five million worker pieces: five million workers who have registered pension plans and five million who don't. And they face quite different challenges today.
The bottom line is that most of the workers who are members of registered pension plans will in fact get their pensions. There is a small proportion who will likely only get 60¢ on the dollar, because they work for private sector organizations that are now in financial difficulties.
It's interesting to contrast with the other five million who don't have pension plans. Many of them will in fact have trouble replacing an adequate amount of income once they stop working, with their current arrangements. The markets have not been kind to them in terms of reducing the value of their RRSPs, and there are other issues related to the consistency with which contributions are made and to how well the plans are carried out.
So those are the overall challenges today with the system.
The good news is that we know how to fix the problems. There has been a lot of research done in the last few years. I wrote a book a couple of years ago, Pension Revolution: A Solution to the Pensions Crisis, and since that time the C.D. Howe Institute has come out with a number of papers. Most importantly, there are now the three expert provincial commissions that have looked at the issues and have made recommendations. And there is in fact a fair amount of consistency in where the solutions lie. They lie in the direction of fixing the problem with the benefit formula. DB plans are too rigid and DC plans aren't structured enough. We need to go to a target-benefit approach that lies between those two extremes. The other thing we've learned is that we have to deliver pensions through large pension delivery organizations that have scale, are at arm's-length, and have expertise to do that kind of work.
The third and maybe most important thing that we need to fix is the coverage issue, the fact that out of those 10 million workers who should have supplementary pensions, only half have a formula approach; the other half are basically left to fend for themselves. That is not an appropriate way to go.
I have made a specific proposal through a C.D. Howe paper called “The Canada Supplementary Pension Plan (CSPP): Towards an Adequate, Affordable Pension for All Canadians”. There are a number of similar proposals now floating around, and I believe we need to take them very seriously.
The final point I want to make is how we get from here to there. That will be no mean challenge. A lot of these things actually are already happening. DB plans are being closed or they're being converted to more flexible arrangements. DC plans, group RRSPs, are increasingly moving toward auto-enrolment and various types of default options that get people to where they want to go. There was a discussion just last week about super-funds in the papers. Michael Nobrega floated that idea. And we do need to move to larger, more expert entities to manage these funds.
On the coverage front, as you know, it's already an election platform in British Columbia that there should be a province-wide plan for all those workers not covered. I think that idea will move east. It will go to Alberta and to Saskatchewan. Ontario will pick this up as well, as will Nova Scotia. This leads us to the question that I will leave you with, which is, what's Ottawa's role going to be in all this?
You have a choice, all the way from being a passive bystander and watching all this happen, to taking a more proactive role in deciding what Ottawa can do to facilitate moving to the retirement income system, the third pillar, that all Canadians deserve.
Thank you very much.