Prepared by: Ontario Ministry of Finance
Ontario’s Public Consultations on Canada’s
Retirement Income System
Ottawa, Ontario
May 6, 2010
Printed On: 2020-04-17 6:52 AM

Canada’s Retirement Income System:
“The Three Pillars Approach”

1.
Universal government benefits for seniors
(PILLAR 1)
2.
Canada Pension Plan (PILLAR 2)
3.
Employment Pension Plans and Individual
Retirement Savings (PILLAR 3)
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Canada’s Retirement Income System among
OECD Countries
“Old-age income safety-nets in Canada are amongst the highest in the OECD, helping Canada have one of the lowest poverty levels relative to average earnings.”
Figure 2.5, OECD Pensions at a Glance, 2009
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
1.
Old Age Security (OAS)
2.
Guaranteed Income Supplement (GIS)
3.
Spouses Allowance (SPA)
Ontario (and other provinces and territories) supplement federal benefits to low-income seniors
4

PILLAR 2: Canada Pension Plan
 Federal government and Provinces are joint stewards of the CPP
 Provides retirement, survivor, and disability benefits
 Universal coverage of all workers in all industries
 Employees and employers make equal contributions
(4.95% each – 9.9% combined) on earnings up to annual maximum of $47,200 (2010)
 Defined Benefit – up to 25% of the average wage
 Fully portable
 Inflation-indexed to CPI
 Actuarially sound for the next 75 years
 CPPIB invests assets of $123.9 billion
5

Recipients of Universal and Employment-based Government benefits by Canadians aged 65 and above
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
OAS, GIS or SPA CPP / QPP
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PILLAR 3: Employment Pension Plans
(EPPs/RPPs) & Individual Retirement Savings
1. Employment Pension Plans (EPPs/RPPs)
 Voluntary plans sponsored by an employer or union
 Defined Benefit (DB), Defined Contribution (DC) or
Hybrid
 Maximum DB pension accrual is $2,494 per year of service (2010)
 Subject to federal or provincial pension benefits standards legislation
 Contributions are tax deductible and investment income is tax deferred
 Benefits are taxable
 Traditional DB coverage has been gradually declining
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Ontario Employees Covered by DB Pensions
Per Cent
50
40
30
20
Paid employees who are members of DB pension plans, Ontario
10
0
1992 1995 1998 2001
Sources: Statistics Canada, Pension Plans in Canada and Labour Force Survey.
2004 2007
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PILLAR 3: EPPs/RPPs and Individual
Retirement Savings
2. Registered Retirement Savings Plans
(RRSPs) / Registered Retirement Income
Funds (RRIFs)
 Contributions to RRSPs are tax deductible
 RRSP withdrawals and RRIF income payments are taxable
 In 2006, federal RRSP tax expenditure was estimated at $10 billion (plus Provincial tax expenditures)
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PILLAR 3: EPPs/RPPs and Individual
Retirement Savings
 Total savings rates in Canada are very low by historical standards
 Average family savings of $1,332 per year
 Savings are accumulated and then dispensed over a person’s life cycle
 Savings can be held in non-pension financial assets (including the new TFSA) and nonfinancial assets
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Canada’s Retirement Income System:
“The Three Pillars Approach”
Canada
Income of Individuals Age 65 and over, by
Disposable Income
After-tax Income Quintile, 2006
80000
Earnings
60000
40000
20000
Investment and Other
Income
RRIFs
Pension Income
Other Gov't Transfers
CPP/QPP 0
OAS/GIS
-20000
Income Tax
-40000
Lowest
($10,200)
Second
($16,200)
Middle
($20,800)
Fourth
($28,200)
Quintiles (Average After-tax Income)
Highest
($50,300)
Source: Statistics Canada, Survey of Labour and Income Dynamics and Ontario Ministry of Finance
Notes: Other government transfers include social assistance, EI benefits, Child tax benefits, Provincial tax credits, etc.
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Canadian Retirement Income System:
Strengths
Strengths
 RIS has worked well for many Canadians

Dramatic declines in senior poverty since 1970s
 Diversity of the RIS is a strength
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Challenges
 Market downturn in 2008 and low long-term interest rates
 Declining coverage in traditional pension plans
 Pillar 2 (CPP/QPP) provides lower benefits than in most other developed countries
 Questions about the ability of the existing system to deliver for tomorrow’s seniors
 Research suggests that 1/4 to 1/3 of Canadians may not be savings enough for their future retirement.
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 Ontario research identifies the challenge for tomorrow’s seniors:
“The status quo is an option. However, it is an option that may leave a significant minority of people with moderate to high earnings facing a decline in their standard of living in retirement, and force many people to rely on sub-optimal pension and retirement savings institutions.” - Bob Baldwin
“There is… some evidence that not all working Canadians are saving enough… Further study is needed to determine the degree of saving inadequacy. - Jack Mintz
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Expert Commission on Pensions

Review funding of DB pension plans and related matters
 Bill 236, Pension Benefits Amendment Act, 2010

First major pension reform in Ontario in over 20 years
 Premier McGuinty calls for National Pension Summit
 FPT Working Group on Retirement Income Adequacy


Ontario research by Bob Baldwin
Federal research directed by Jack Mintz
15


1.
Expansion of public pensions (CPP)
2.
Supplementary DC pension plans
3.
Pension Innovation
4.
Reforms to Tax Assistance
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Key Questions for Discussion
 Why do we need to strengthen Canada’s retirement income system?


In your view what research or evidence demonstrates that people are not saving enough for retirement?
How would you define “enough”, and how much weight should be placed on personal choice?
 What are some of the possible options or combination of options that the government should consider in strengthening Canada’s retirement income system for tomorrow’s seniors?
 How would your preferred options or proposal be implemented?

How would your proposal work?




What do you think it might cost?
How would costs be allocated among employees, employers, etc.?
Would it be voluntary (e.g. opt-out) or mandatory?
How might other stakeholders be affected?
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