Ottawa wants more pension options for self employed, small business

Finance Minister Jim Flaherty has written his provincial counterparts, asking them to agree to the framework when they meet in Kananaskis, Alta., on Sunday and Monday.

The new plans could be in place by the end of 2011, he said.

Flaherty said creation of what he called “pooled registered pension plans” would address the issue of many Canadians in their 20s, 30s and 40s, who don’t regularly sock away enough for their retirement years.

As well, he said, many small and medium-sized businesses which can’t afford to establish pension plans for their employees would now be able to offer them.

“It would make a nice easy way for people to save for their retirement, it would be relatively painless and it would have the professional management (insurance companies) that larger pension plans have,” he explained.

The government and provinces have also discussed expanding the Canada Pension Plan, but Flaherty said agreement on that issue would be difficult. Alberta opposes the move and Quebec’s intentions are not clear.

Liberal critic Judy Sgro accused Flaherty of taking the easy way out on pension reform.

“This is a baby step … but it’s not going to do much for (many) self-employed, for women that are in and out of the work force, for those in rural Canada. This applies to a very small segment,” she said.

Under the federal proposal, the pooled, low-cost plans would be based on defined contributions. It would be available to any type of employee, as well as the self-employed.

In his letter, Flaherty noted that the plan would require federal and provincial regulations to be harmonized, but the payoff would be a boon to Canadians.

“This would improve the range of retirement saving options available to Canadians as well as provide low-cost retirement options allowing participation by employees — with or without a participating employer — and the self-employed.”

Absent in Flaherty’s letter is any mention of expanding the CPP.

Insiders say the federal government is moving ahead with reforms led by the private-sector first, since prospects for agreement are more certain.

Plus, the rewards of private-sector reform would come much sooner than CPP reform. By giving financial institutions the leeway to set up large, pooled plans by next summer, employees not covered by company pension plans could start siphoning their savings in that direction right away.

CPP reform will be gradual, and take a full generation before the full benefits can be reaped.

Ottawa and the provinces have been discussing how best to reform the country’s retirement income system for well over a year.

The financial crisis of 2008 exposed how fragile many Canadians’ retirement savings were, and revealed that huge chunks of the population can’t depend on company-sponsored plans to carry them through their retirement years.

Research has shown that RRSPs and other types of individual savings are not sufficient for many people, and because of bank management fees, are a high-cost way of saving.

Last June, the provincial and federal governments said they would look at a three-pronged reform: financial literacy, regulatory changes to give the private sector more freedom to offer low-cost savings options, and gradually enhancing the CPP.

By pushing the private-sector reforms first, Ottawa can get the file moving while it figures out how to handle the larger CPP issue.