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Canada’s Retirement
Income System:
Issues and Options
Ontario’s Public Consultations on Canada’s
Retirement Income System
Ottawa, Ontario
May 6, 2010
Prepared by: Ontario Ministry of Finance
Printed On: 17/07/2015 4:03 PM
Canada’s Retirement Income System:
“The Three Pillars Approach”

Canada’s pension system consists of
three pillars:
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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PILLAR 1: Universal Government
Benefits
 Federal seniors benefits include:
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
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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
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Recipients of Universal and Employment-based Government benefits by Canadians aged 65
and above
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
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85
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86
19
87
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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
0%
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
2004
2007
Sources: Statistics Canada, Pension Plans in Canada and Labour Force Survey.
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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
3. Other 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
After-tax Income Quintile, 2006
Disposable Income
80000
Earnings
Investment and Other
Income
RRIFs
60000
40000
Pension Income
20000
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)
Highest
($50,300)
Quintiles (Average After-tax Income)
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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Canadian Retirement Income System:
Challenges
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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Canadian Retirement Income System:
Defining the Challenge
 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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Canadian Retirement Income System:
Government Response
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
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Canadian Retirement Income System:
Key Options
 Major stakeholder proposals for reform:
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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