With Canadians at risk of a retirement savings shortfall, the pension system must be overhauled, according to Jim Leech, president and CEO of the Ontario Teachers Pension Plan Board.

Speaking at the Conference Board of Canada’s Summit on the Future of Pensions in Toronto on Tuesday, Leech called for action by the government, the pension industry, and individual Canadians.

“Our current pension system needs to be overhauled,” he said. “There’s too much at stake for continued inaction.”

Leech explained that defined benefit pension plans are better vehicles for pension savings than defined contribution plans, from both a security and a cost basis. But he said DB plans have become unaffordable for plan sponsors due to inflexible rules, and an inability to save enough during good times to offset market downturns.

Defined contribution plans, on the other hand, are inadequate, Leech said. He calls for the industry to consider moving to a hybrid model, and to consider some of the innovative steps taken by such countries as Britain and the Netherlands. For example, he noted that the Dutch government has allowed for the merging of small and large pension funds, allowing smaller funds to share investment risks.

“We have an opportunity now to lead the way in delivering innovative, practical retirement financing solutions,” he said.

But in order for this innovation to take place, legislators must pave the way with more flexible rules and regulations, Leech said. He noted that adjustments to pension regulations have so far been marginal, and have not addressed the majority of private sector workers who are not covered by a workplace pension.

Individual Canadians also have a role to play in addressing the savings shortfall, Leech noted. Individuals must take responsibility for their futures by saving more, and by ensuring their retirement expectations are realistic.

“As a society, we probably need to reset our expectations,” he said.

Leech said Registered Retirement Savings Plans have proven not to be a viable alternative to pension plans, as not enough individual Canadians take the initiative to use these vehicles to save independently. “Only a handful” of individuals contribute the maximum amount to their RRSPs each year, he pointed out.

IE