Good afternoon.

It’s my great pleasure to be here in Calgary. 

In my role I have the opportunity to travel across Canada and meet with many people involved in the financial services sector and national and regional financial policy.

Those discussions typically range across different topics and priorities, but recently they all seem to turn eventually to the same topic: whether Canadians’ are going to have enough income to live on for retirement.

It’s an issue that’s top-of-mind for our federal and provincial finance ministers who have initiated consultation processes.  We welcome this national debate.

However, the tone of much of the public discussion about our retirement savings system seems to suggest that the patient is critically ill and the best response is radical surgery.

I am here today to propose both a different diagnosis and a different prescription -- no less effective, but certainly with less risk to the patient’s overall survival and future health.

Let’s start with a bit of patient history.

It’s worth reminding ourselves that Canada already has one of the best retirement savings systems in the world. 

That’s the assessment of expert third parties including the 2009 Melbourne-Mercer Global Pension Index which placed Canada in the top four in the world with Australia, the Netherlands and Sweden.

Noting this fact is not an act of self-congratulation, but an important reminder -- because it is precisely from this track record of success that we should find the path to the future.

Far-sighted policymakers who preceded us built a retirement savings structure based on:

• multiple pillars
• dispersed risk
• tax incentives
• and clearly defined roles for the public sector and the private sector.

That framework has served us well and continues to do so.

Along the way, there have been moments of course-correction and adjustment to keep the system functioning well and responsive to changing external conditions.  

We’re at another of those course correction moments now.

However, let there be no misunderstanding -- the life and health insurance industry is not saying that we should maintain the status quo. 

What we are saying is that we should build on the many strengths that are already a hallmark of our system.

In that regard, we are at a moment of real opportunity to build on the existing retirement savings system and create an even better system for future generations.

And we need to be practical; that is to say, we need solutions that are pragmatic, cost-effective and immediate.

In fact, as part of the CLHIA’s efforts to contribute to the discussion of the retirement savings system, we have undertaken some recent research with working Canadians, the results of which we released recently.

One of the most striking findings is that Canadians have told us that there are to be new savings options, they want those new options now. 

More than 75 per cent of working Canadians said they want new options immediately or within the next five years.

And I agree with them. 

As a nation, we cannot afford to pursue solutions that will take years and years to get into place; particularly not when we have a set of powerful solutions right within our grasp.

As you might have surmised, I have some very specific recommendations, which I will detail momentarily.  

But it’s important to start with the framework because it defines the solutions.
The Canadian retirement savings system is based on three specific pillars.

At the most basic level, we have government assistance available to all Canadians: Old Age Security, established in the 1920s to provide a base of guaranteed income for seniors.  And for low-income seniors, the addition of the Guaranteed Income Supplement.

The next pillar is the Canada Pension Plan/Quebec Pension Plan.  (For simplicity sake, I will use the shorthand “CPP” to refer to these programs.)  

CPP is funded by mandatory contributions split between employer and employee.

For someone earning $20,000 annually, the combination of these first two pillars -- OAS/GIS and CPP -- will replace 75 percent of employment income at retirement. 

But for someone earning $40,000, the income replacement rate drops to just 41 per cent.  And the replacement rate continues to fall as income goes up.

It is important to keep in mind that the public programs like OAS, GIS, and CPP were never intended nor designed to generate all the necessary retirement income for most Canadians.
So there is a need for Canadians to make up the balance and maintain some semblance of income replacement.

This is the third pillar.  

It is the private sector savings products offered at both the individual and workplace level -- products like RRSPs, group RRSPs, pensions, and more.

This is where the majority of retirement savings dollars are generated and held.  And this is also where the greatest opportunity exists to augment Canadians’ savings, as I will explain shortly.

So, Canada is fortunate to have a well-designed three pillar system and one deserving of the accolades it receives. 

But even the best-designed system falls short if people don’t or can’t use it fully.
And this is where we reach the crux of the current debate.

Consider that Canadians contribute $34 billion dollars every year to RRSPs.  But they’ve only used 6 per cent of the available contribution room since 1991.  

How do we increase the rate of retirement savings by Canadians? 

Should the government step in and build a whole new supplemental pension program; in effect, adding a fourth pillar on the taxpayer’s tab? 

Or increase the existing contributions to CPP?

In response I ask: how does it make sense to let Canadians becomes less engaged, and less responsible for their own financial future and more dependent on government?

And the task of building a government-based Defined Contribution pension program cannot be underestimated in its scale and complexity.   It would take years and cost significant amounts of money.

While it’s appealing to think that the CPP could simply add on a Defined Contribution plan to its current mandate, in truth, it’s a massive undertaking.

There are profound differences between offering a Defined Benefit Plan, which is the current CPP,  and a Defined Contribution program.  

In a DB plan, there are virtually no member service requirements – no need to educate, service, advise or customize.   

By contrast a DC program requires a much greater level of customization and interaction with individual plan members.  That’s something that the CPP is not doing at all now.

Creating such a government program would require replacing what already exists in the private sector with a government program such as was undertaken in the U.K.  That process will have taken 7 years by the time it is launched in 2012 -- and recovering the set-up costs through a special charge in the U.K.  is expected to take many years after that.

I will be plain: this country does not need another big government savings program.

There are better alternatives.

And they focus on improving the existing third-pillar programs to engage more people and attract more retirement savings contributions.  

They include up-dating, simplifying and improving tax and financial legislation to provide more incentives to save and more choice and flexibility.

Let me be specific.

Currently only about half of private sector workers in Canada participate in any kind of workplace-based retirement savings program like a pension or group RRSP. 

This is despite the fact that such programs are one of the most effective and efficient ways to save for retirement.  You can start saving early, contribute money on a regular basis, and it’s deducted directly from income – a less painful way for workers, in my view.

At the same time, there is a worldwide shift taking place in the type of workplace plans offered. 

Where once Defined Benefit pensions were the norm, the shift has been underway to Defined Contribution programs. Worldwide Defined Contribution assets now make up over 40 per cent of all pension assets and are growing at a rate of 6.2 per cent per year.

While the shift in Canada is slower, it is nonetheless taking place as employers struggle with the funding costs, legal liabilities and unnecessarily complex legislation ruling Defined Benefit plans.

The vast majority of workplace savings programs in Canada exist in larger employers -- companies of 500 or more workers.   They are much less likely to be offered in small businesses.

This is because the legislation and regulations that apply to programs like pensions plans make it onerous for a small business to set up the required administration to manage them. 

There is a relatively simple solution. 

Multi-employer pension plans have existed in Canada for decades.  In this model, a number of companies pool contributions into a single plan.

Currently participation is limited to groups of companies in similar businesses often bound by the same collective agreement such as in the construction trade.

We are recommending changing the regulations around multi-employer pensions plans to allow any employer to participate.  In that scenario defined contributions would be pooled and the plan administered by a regulated financial institution.

This would relieve the employer of almost all administrative costs and compliance workload except for payroll deduction processing.

We are also recommending that multi-employer pension plan participation be opened up to the self-employed who are currently excluded from many savings options available to other Canadians.  

In addition, to stimulate further workplace savings for retirement, we recommend that every workplace with 20 or more employees provide a group retirement savings program on its own or through a multi-employer plan. 

Employers would be allowed to decide whether to contribute to the plan on top of employee contributions.

If we took these two steps – expansion of participation in multi-employer pension plans and mandatory offering of workplace savings plans -- we would break down a long-standing barrier preventing smaller firms from offering group savings programs.  And we would reach 80 per cent of all Canadian workers.

And let me assure you, there is an appetite for these programs.  In the research done for us by the Environics Research Group, we found that 89 per cent of Canadians want workplace-based retirement savings programs to be made available to them.

More than half of workers who are not already participating in such a plan want to join one, with younger workers in the 18-29 year-old cohort particularly keen.

We’re saying that these plans should be administered by regulated financial institutions.  Why? Simply because they are regulated as companies and must operate to a certain standard.

And because this is where the professional management expertise and capacity exists.  A vigorously competitive financial services sector ensures innovation, service and competitive pricing.  And it provides choice and options for the employer.

This is what I mean by renovating our current retirement savings system rather than tearing it down.  We have capacity and vehicles to stimulate more savings behaviour but we need to up-date our system to improve access.

Let me give you another example. 

Group RRSPs are becoming an increasing proportion of workplace savings plans.  Employers choose them because they are currently administratively simpler than Defined Contribution pension plans, as already explained.  

But as they are RRSPs, withdrawals can be made at any time including ahead of retirement. Some employers are reticent to set up Group RRSP plans if their contributions may never be used for retirement.

We are recommending that there be amendments to tax legislation to ensure that employer contributions to Group RRSPs were locked-in and retained for retirement purposes.

On the same topic of RRSP legislation, we need to account for the realities of how people earn income over their lifetime.  Things happen in people’s lives that cause annual income to rise and fall – job changes, maternity leave, returning to school, for example. 

In the current system, RRSP contribution capacity rises and falls with income because of the calculation of the limit as a percentage of annual income.

What if we adopted a lifetime fixed-dollar RRSP contribution limit?  

Then people could maximize contributions in years when they had that financial ability and compensate for years when they did not.    

Great Britain established a lifetime pension contribution limit in 2004 and it is worth consideration for Canada.
Consider also how we currently define ‘earned income’ for the purposes of defining RRSP contribution limits.  It is a narrow definition based on the traditional model of an employee earning a salary or wage.

But we have a significant sector of Canadians who also earn income through a variety of streams such as royalties, active business income and rental income, to name a few. 

If we redefined earned income to take into account this fuller scope, we’d give people greater capacity to save in registered programs and greater potential to leverage their earnings for retirement savings.

These are just a few of the dozen recommendations that the CLHIA has made as part of its participation in the current consultations. 

All our recommendations are grounded in the same core principles:

• We have to continue to ensure that all Canadians can cover the cost of basic living needs in retirement.  That is the role of the government programs: Old Age security, Guaranteed Income Supplement, and CPP. 

• We have a strong system that is being underused and where access to savings products is inequitable.  We need to open up access to those existing programs and stimulate Canadians to save more.

• It should continue to be the role of the third pillar – the private sector-delivered individual and group savings programs -- to bridge the gap from basic income to income adequacy.  The infrastructure exists.  It is competitive, cost-effective and ready with capacity.

• And the final principle is choice and empowerment.  In seeking to assist Canadians in having a financially stable retirement, we cannot deny them choice, flexibility and control.  If anything, we must give them the tools and resources to better exercise that choice.   We have to engage the individual to act in their own best interest. Otherwise we will create new generations of citizens increasingly reliant on government programs.

 We welcome the public discourse that is taking place about this important topic.  Many voices should be heard.

At times like these, blue-skying and considering radical change can be useful exercises.  But at the end of the day we will have to be practical, and what is best for Canadians.

We’ve had a multi-layered system for decades that has proven itself capable of evolution, and able to respond to changing market dynamics and needs. We don’t need a revolution.

We need to begin now to make our existing system work better.

The life and health insurance industry stands ready to play its role.

Thank you.