Canadian Bankers Association

Canadian Bankers Association

November 27, 2009 10:00 ET

Retirement Savings System Not Broken but Needs Improvement to Help Canadians Save More

TORONTO, ONTARIO--(Marketwire - Nov. 27, 2009) - As governments from across the country grapple with how to ensure that Canadians have adequate retirement savings, the Canadian Bankers Association (CBA) today released a report outlining its views that Canada already has a good retirement savings systems in place, but some necessary fixes to out-of-date and restrictive rules should be implemented to increase savings.

The report, "Modernizing Canada's Retirement Savings System", presents new research on Canadian household savings. It found that families save in many different ways depending on factors such as their stage in life and whether or not they have an employer-sponsored pension plan. The CBA report cautions, therefore, against rushing into a one-size-fits-all public approach, such as creating a new government pension plan, when it may not be the best solution and could duplicate existing private retirement savings and employer-sponsored pension programs.

"Ensuring that all Canadians have sufficient retirement savings is a national issue, and requires national public policy solutions that will encourage Canadians to save more," said Nancy Hughes Anthony, President and CEO of the Canadian Bankers Association. "The banking industry believes that the retirement savings system in Canada is not broken, but it is in need of some urgent improvements. Why reinvent the wheel when it may be more effective for governments in Canada to work together to improve the private-sector, tax-assisted system that we already have?"

How to repair the current system

In the report, the CBA makes a number of recommendations about how the current retirement savings system could be modernized to help Canadians better prepare for retirement. Among the recommendations are:

- Encouraging the development of new and innovative types of pension plans - For example, the right to offer pension plans should be de-linked from the employment relationship, and legislation should allow the development of multi-sponsor or third party plans open to a wider range of membership. Such plans could lower costs because of economies of scale, offer small and medium sized businesses effective alternatives to setting up their own plans and be open to self-employed individuals, so more Canadians have the opportunity to participate in pension plans.

- Improving Registered Retirement Savings Plan (RRSP) rules - To help give older Canadians "more retirement income bang from their savings buck", the CBA makes a number of recommendations, including increasing the age at which an RRSP must be closed out and taxing RRSP withdrawals at more favourable rates. Also, the report suggests a lifetime approach to tax-assisted retirement savings rather than an annual approach so that workers who have difficulty saving in certain periods of their lives can catch up when they are in a position to save more.

- Harmonizing pension laws - Harmonizing pension laws across the federal and provincial jurisdictions would remove barriers for companies operating in more than one province when considering whether to offer pension plans to their employees. The Ontario government has said that it is considering pension harmonization with the federal government's recent reform proposals, and the CBA urges other provinces to do the same.

The CBA report also points out the need for enhanced financial literacy as it relates to savings in general and retirement savings in particular. The federal government has taken a leadership role in this area through a number of initiatives, including creating the Financial Literacy Task Force. As a strong proponent of increased financial literacy among Canadians of all ages, the banking industry supports the federal government's efforts and is encouraging the Task Force to ensure that retirement planning is a key element of its deliberations.

"It is our belief that coordinated action by governments across Canada to modernize these retirement savings rules would strengthen the ability of the private sector to help Canadians save for their retirement," said Ms. Hughes Anthony. "Rather than limiting the options available to Canadians, the focus should be on making better use of the resources, expertise and advisory skills of the private sector to develop retirement savings vehicles that meet the needs of families at different stages of their life cycle."

The CBA report was submitted to the Research Working Group on Retirement Income Adequacy, the group created by the federal, provincial and territorial Ministers of Finance in May 2009 to study retirement adequacy in Canada. Chaired by Ted Menzies, parliamentary secretary to federal Finance Minister Jim Flaherty, and supported by research director Jack Mintz and finance ministers from British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, the Working Group is expected to report to finance ministers and ministers responsible for pensions by the end of 2009.

The full report, including the CBA's research and recommendations, can be found at http://www.cba.ca/contents/files/submissions/sub_20091123_pension_en.pdf

The Canadian Bankers Association (CBA) works on behalf of 50 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 263,400 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The Association also promotes financial literacy to help Canadians make informed financial decisions. www.cba.ca

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