In-house counsel and lawyers with business clients across Canada are readying for action on pension reform, as federal and provincial finance ministers prepare to meet to discuss reforming Canada’s retirement income system.
A number of provinces are looking to reform their pension systems, including Ontario, Nova Scotia, Alberta, and British Columbia, and in-house counsel will have to watch their own jurisdiction’s reforms, says Kathryn Bush, an expert on pension reforms and partner at Blake Cassels and Graydon LLP.
“This is a set of reforms that is going to require in-house counsel to consider whether their pension plans require amendment,” says Bush. “It should be a pretty busy time for lawyers getting everything in place for all these reforms, so it is something general counsel and in-house counsel should know about.”
The crux of the changes relates to whether people in Canada are saving enough money for their retirement. While most people agree reform is needed, the terms of the changes are subject to debate.
Canada’s current system is comprised of income-tested old-age transfers, mandatory public pensions, registered self-saving accounts, and employer-provided pensions.
One reform proposal would double the mandatory contributions to the Canada Pension Plan. It has the support of labour, but is opposed by small businesses, which see it as an additional cost.
Federal Finance Minister Jim Flaherty seems to be looking for some middle ground.
“I believe that we should consider a modest, phased-in, and fully funded enhancement to defined benefits under the Canada Pension Plan in order to increase savings adequacy in the future,” Flaherty wrote this week in a letter to the provincial finance ministers ahead of their meeting.
“Changes to Canada Pension Plan require significant provincial support, and I will be particularly interested in getting your perspective.”
Earlier this week, TD Economics released a report arguing for the need for reforms to make sure seniors don’t slip into poverty after retirement.
In the report, TD’s chief economist Craig Alexander says the retirement income system is increasingly falling short in helping individuals accumulate sufficient assets during their working careers to maintain their standard of living in retirement, even at 60 per cent to 70 per cent of pre-retirement earnings.
“Future retirees will face a far different scenario from today. A number of factors including the decline in personal savings rates, rising household debt levels, volatility in asset markets, and declining employer pension coverage will negatively impact many seniors’ lifestyle,” says Alexander. “Policy-makers must act now to mitigate future risks.”
While there will be a lot of action on the reforms in the upcoming weeks, the final results might take some time to arrive.
“These are big issues, so I don’t know how quickly they will be settled, but it’s going to be important for people to know about it and for in-house lawyers to keep their business people apprised in case they have a particular view, and they may want to be part of the lobbying action,” Bush tells InHouse.
