OTTAWA (Reuters) - Federal and provincial ministers meeting on Friday are expected to consider a recommendation to allow voluntary extra contributions to the Canada Pension Plan as a way to help Canadians better prepare for retirement.
Pension reform was the main focus of Friday’s meeting in the Yukon capital of Whitehorse on Friday between Federal Finance Minister Jim Flaherty and the provincial and territorial finance ministers.
The most prominent suggestion going into the meeting was to set up a system whereby Canadians could choose to make supplementary contributions to the mandatory Canada Pension Plan.
The idea, being pushed by British Columbia and Alberta, is to provide an additional channel for those who do not have private pension plans to boost their retirement benefits.
Saskatchewan already is operating such a voluntary plan on a provincial basis, and the province is among those that have shown an interest in making it national.
Canada offers other tax-protected savings options, notably the Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts, which are not being fully utilized.
A study by Royal Bank of Canada released on Thursday said just 35 percent of Canadians planned to contribute to an RRSP for the current tax year.
Advocates of the a supplementary CPP say it could attract those who are not financially sophisticated who might want to save more for retirement but who are not as comfortable managing their own retirement funds. It also might have lower fees.
But a supplemental CPP could displace RRSP savings and cut into the business of financial institutions.
The opposition Liberal Party came out last week in favor of the Supplementary Canada Pension Plan. Flaherty says all options are on the table but he has not taken a position.
A secondary concept the ministers may consider is whether anything should be done to protect the pensions of companies that go bankrupt, like Nortel Networks Corp.
Some opposition politicians advocate putting workers’ pension funds at the head of the line of creditors when a company goes bankrupt. The idea may have intuitive populist appeal, but Flaherty has pointed out that such a plan may make it difficult for a distressed company to attract fresh credit that could go straight into pensions.
The ministers were considering a government-commissioned study on how to reform the system, but were unlikely to reach a final decision on Friday on how to proceed.
Reporting by Randall Palmer