Canada's mutual-fund industry is warning politicians they risk doing more harm than good as governments face growing pressure to shake up the way Canadians save for retirement.
Simply leaving their savings in a new public alternative to RSPs could deprive Canadians of personal financial advice, the Investment Funds Institute of Canada says.
"There's a belief that if you just create this big plan, that people don't need individual advice, and that just isn't true," Dennis Yanchus, the institute's research manager. "This is a big move that has a lot of implications."
The industry's concern comes in response to increasing calls for a voluntary public investment option modelled on the Canada Pension Plan. Some provinces are planning to go down this road alone if no national plan emerges.
Finance Minister Jim Flaherty is expected to discuss this and other pension reform proposals with the provinces at a summit this month in Whitehorse.
At a news conference in Ottawa, federal Liberal Leader Michael Ignatieff threw his support behind the idea of a "supplemental" CPP fund yesterday. New Democrats accused the Liberals of copying their pension plank, but NDP Leader Jack Layton nonetheless welcomed the Liberal announcement as a sign that a political consensus may emerging on pension reform.
Mary Webb, a senior economist with Scotiabank, said she sees political momentum building toward significant and needed pension reform. But she too said there are important details to consider, such as what would happen to workers who move around the country if some provinces go it alone.
"Portability has been an age-long issue here in Canada in terms of our retirement savings," she said. "So if we have some provinces opt in and some provinces not, that certainly makes that issue more complicated. ... That's a very significant problem."
The Canada Pension Plan and Registered Retirement Savings Plans are core federal polices at the heart of how Canadians plan for retirement.
CPP payments are mandatory, and RRSPs are voluntary. However, less than 30% of taxpayers contribute to an RRSP, and many of them do not put in the maximum allowed. Advocates for a supplemental CPP believe it would be attractive option for those who want lower management fees and are confused by RRSPs.
But given that RRSPs are already well-known, some wonder whether another option would make much difference.
The Canadian Labour Congress is calling for the mandatory CPP premiums to increase gradually over seven years so that CPP benefits double.
"It will ensure that all workers will save for their retirement," said Hassan Yussuff, the CLC's secretary-treasurer. Mr. Yusseff notes Canadians have been urged for decades to invest in RRSPs, yet most do not.
"We've seen what voluntary systems tend to do," he said. "There was an expectation when the RSP was proposed that there would be far more people participating in it and that has not been the case, so we've got a real challenge here."
Mr. Yusseff said the CLC supports Mr. Ignatieff's call for the CPP to take over the pension plans of bankrupt companies to protect employees' savings.
Mr. Ignatieff also proposed amendments to the Bankruptcy and Insolvency Act so that disability benefits are protected when a company goes bankrupt. He called on all parties to act quickly to protect the hundreds of former Nortel employees who are facing drastic cuts to their benefits and pensions as the company works through bankruptcy protection.
