Anyone hoping a solution to Canada’s pension problems would come out of the recent meeting of federal and provincial finance ministers in Whitehorse must have been disappointed. The ministers met for two days in mid-December, talked about the adequacy of retirement incomes and decided the pension system is not in crisis after all.

Their confidence was fuelled by a report from University of Calgary professor Jack Mintz, research director of a working group set up by the finance ministers in May 2009: “Canadians are doing relatively well in ensuring they have adequate savings for their retirement.”

The retirement income system is performing well, says the Mintz report: “providing Canadians with an adequate standard of living upon retirement.” Although, he adds, “The evidence does strongly suggest that some Canadians do not have sufficient replacement income.”

Because of data limitations, says the report: “It is not always clear precisely which Canadians are undersaving.” There may be several reasons, “including job losses, inadequate saving discipline, losses in wealth due to bad luck or poor investment choices and late migration to Canada without much saving.”

But, given the long-term effects of savings decisions, the report continues: “It is important to make sure that any policy decisions do not have unintended consequences that impact on the ability of Canadians to save for retirement and other needs.”

That seems to have let the finance ministers off the hook — at least, for now. They will go away, study and discuss some more, hold public consultations and come back again — probably in May — to decide what needs to be done.

The life insurance industry liked what it heard and welcomed the outcome of the Whitehorse meetings, saying the finance ministers had agreed “to study a range of possible retirement options, including giving financial institutions greater leeway to operate group retirement plans.” Says Frank Swedlove, president of the Canadian Life and Health Insurance Association: “We believe that meaningful change can be achieved most effectively by using the infrastructure and expertise that already exists within the financial services industry.”

The Canadian Labour Congress was also pleased with the outcome, particularly the commitment to hold consultations and that the ministers agreed a pan-Canadian option is needed. But senior pension researcher Joel Harden says the CLC is disappointed the ministers appear to believe the retirement income system is in good shape. “We completely disagree,” he says. “But we would rather bring our members into the consultation process and we look forward to developing clear policy ideas for action.”

Finance ministers had been urged to endorse a supplementary national pension plan, developed by Alberta and British Columbia, to enroll workers without a workplace pension plan — 62% of Canadian workers — in a centrally administered defined-contribution type of plan. Workers and their employers would contribute a percentage of earnings to the plan, but their individual retirement benefits would depend on what their invested contributions earned. No particular pension benefit at retirement would be guaranteed. There would apparently be automatic enrolment in the plan for employees without a workplace pension plan, but they would have the choice of opting out

The two provinces had said they would go it alone if there was no will to adopt such a plan at the national level. Now, following the Whitehorse meetings, it seems the western provinces may be backing down. B.C.’s finance minister was apparently downplaying the urgency of action and was quoted as saying a combination of options might now be the best approach.

Other options put forward before the meeting included the possibility of improving Canada Pension Plan benefits by doubling the replacement to 50% of annual average earnings, up to a maximum limit rate, from 25%. Mintz’s paper doesn’t deal with this option — favoured by the CLC and the Canadian Association of Retired Persons, among others — and there’s no indication of whether it was discussed in Whitehorse.

Former Bank of Canada governor David Dodge and Ted Menzies, parliamentary secretary to the federal finance minister, have described it as a “nanny state” solution. But it’s apparently supported by the head of the CPP Investment Board, David Denison. In September 2009, he told a conference of social security actuaries and statisticians: “A mandatory national plan creates scale and certainty of cash inflows that permit the effective pooling of longevity risk, investment risk and timing risk. With no dependence on a plan sponsor, and so, no solvency risk, we are able to manage the fund from a sustainability perspective — in our case, over the span of 75 years — rather than from the triennial solvency funding perspective of an employer-sponsored defined-benefit plan.”

Denison cited the Canadian Institute of Actuaries 2007 study that found “only about one-third of Canadian households are currently saving at levels that will generate sufficient income to cover their non-discretionary expenses in retirement.” And, he noted, about 11 million Canadians have no access to a workplace pension plan.

But according to the Mintz study: “Among Organization for Economic Co-operation and Development countries, the disposable income of all Canadians aged 65 year or over is about 90% of the average disposable income of all Canadians, third highest of selected OECD countries. Canada has relatively good replacement rates on average for retirement income. The issue is whether there is a significant minority of Canadian seniors who do not.”

The answer to that is covered in some detail in a report prepared for the Ontario government by pension expert Bob Baldwin, also presented in Whitehorse. Baldwin agrees the goal of adequate income replacement in retirement “has generally been quite fully met for the current elderly.” However, he says, “For a significant minority of elderly who had moderate to high earnings before retirement, retirement may have resulted in a noticeable decline in living standards.”

The Baldwin report says that the public pension programs of old-age security, the guaranteed income supplement and maximum CPP retirement benefits together replace 73% of pre-retirement earnings for those earning up to half average wages and salaries; 42% of those earning the average wage or salary; but only 21% for those earning twice average wages and salaries. Baldwin notes that “an implicit assumption of Canadian pension policy has been that beyond a certain level of earnings, people should look after themselves.”

But the Baldwin report cites research indicating that “roughly one-third of Canadians in the 45 to 64 age range are likely to end up with incomes that fall short of adequate minimum incomes and/or incomes that will allow them to maintain their standard of living.” IE