A practical and affordable solution for bridging the Canadian retirement savings gap

TORONTO - A multi-employer defined contribution (DC) pension plan that allows every employer - including the self-employed - to automatically participate would greatly increase pension coverage for Canadians, according to a senior executive with Sun Life Financial. "With three to five million Canadians not having access to an occupational pension plan, we need to improve the retirement, savings and income system in Canada, opening the door to expanded workplace participation for all Canadians," said Tom Reid, Senior Vice-President, Group Retirement Services, in remarks he made today at the Annual Pension Summit sponsored by the Canadian Pension & Benefits Institute.

Under the proposal, Reid says employers who decide to join the DC plan would select a qualified provider and all the firm's employees would automatically be enrolled.

"While employers could opt out for their own business reasons, we think that employment market pressures, the gentle push of automatic enrolment (which has proven to be an overwhelming success in other countries) and low fees will lead to widespread participation - along with a significant increase in the Canadian retirement savings rate," said Reid. When it comes to fees, Canadian group plans pay on average lower fees to their pension plan providers than those in the United States which average 93 basis points (Deloitte Defined Contribution/401(K) Fee Study June 2009). This compares to an overall average of 60 to 70 basis points across Sun Life's Canadian group retirement business, with two-thirds paying less than 100 basis points and half paying less than 75 basis points. While there are many factors that will determine the precise cost of the proposed solution, such as participation rates, annual deposits and asset balances, Reid believes that a multi-employer DC pension plan will achieve the same scale advantages that larger employers enjoy today.

While there have also been suggestions for expanding government-run plans, Reid believes that the private sector solution is the right one for solving the current shortfall in retirement savings.

"Canadian providers for workplace retirement savings plans today have a proven track record, technology and operating systems, governance structures and consumer insights," said Reid. "They also have the distribution network to reach small and mid-size employers, and the motivation to help expand coverage. If we can knock down the barriers preventing multi-employer plans, do we really need to build a new government-run retirement investment program?"