Good afternoon. I am Micheline Dionne, President of the Canadian Institute of Actuaries. With me is Marc-André Vinson, institute member and pension expert.
We appreciate being invited, and I look forward to an exchange that benefits all Canadians. Allow me to say a few words about who we are and the nature of our activities.
The institute establishes the rules and processes for Canada's actuaries, who apply their deep mathematical knowledge of finance, statistics and risk theory to help solve problems faced by pension plans, regulators, financial institutions, social programs and individuals.
Several of our ideas to improve the Canadian retirement saving system have been adopted, but they are not sufficient to create an environment conducive to saving, strengthening and expanding private pension plans.
This year, we surveyed retirees' and pre-retirees' understanding of the financial risks of retirement, personal choices and responsibility. Startling findings support the need for change. For example, among pre-retirees, 72% are concerned about maintaining a reasonable standard of living for the rest of their life; 62% are concerned about funding health care and nursing homes; 62% are concerned about depleting all their savings; and 20% believe they will never fully retire. In addition, while concerned and aware of the risks, few are taking concrete action to protect themselves financially for the future.
So what are the key issues?
The first issue is that Canadians should save more for retirement. The potential for significant retirement income gaps has increased. Corrective measures must be developed.
Second, Canadians need wider coverage. Less than a quarter of private sector workers belong to any type of pension plan.
Third, Canadians need more flexibility. Recorded life expectancy has been on the rise for at least 100 years, so the normal retirement age of 65 must be reviewed. For example, employer pension plans should be allowed to use a normal retirement age of over 65; legislation should not force employer pension plans to offer retirement at age 55; governments and employers should examine the appropriateness of generous early retirement benefits; the removal of disincentives to working past a fixed age should be strongly considered; and Canadians should be able to work part time or seasonally while collecting partial retirement benefits.
Fourth, Canadians need more education on retirement issues. Many working Canadians have no workplace pension, RRSP, or tax-free savings account, and do not own a home. Better financial education at an early age will help future generations avoid such circumstances. According to our survey, only half of retirees and pre-retirees seek financial advice. The institute supports the federal task force on financial literacy and has volunteered to assist it. Furthermore, plan sponsors should be encouraged to present useful information to members. More accessible independent advice would be beneficial. We support creating easily used tools for Canadians to understand the sources of retirement income.
Fifth, Canadians need defined benefit plans. They are excellent vehicles and their demise is not in Canadians' best interests. To encourage higher contributions, better funding, and security, government should introduce legislation allowing employers to set up 100% employer-funded pension security trusts separate from, but complementary to, regular defined benefit pension funds. The institute has proposed that these trusts be designed to work together with a risk-based target solvency margin and an increased maximum allowable surplus in a pension plan before employer contributions must stop. Reforms have helped, but in order to address the imbalance issue and to encourage stronger funding, the pension security trust concept must be implemented.
Sixth, pension plans need better risk management mechanisms. The financial crisis has highlighted the need for pension plans to establish funding policies incorporating risk management perspectives. We are committed to encouraging further research to develop methods that enhance risk management practices in pension plans.
Seventh, and last, the development of a principles-based approach to the supervision and monitoring of pension plans should be encouraged. This would remove significant obstacles to the maintenance and improvement of defined benefit plans and other plan designs. We would be pleased to assist in the development of regulations that would allow pension risks to be more evenly shared between sponsors and members.
Thank you.