Submission: Submission

The Investment Funds Institute of Canada Submission


By e-mail to

Joanne De Laurentiis
Tel: (416) 309-2300

March 4, 2009

The Honourable Dwight Duncan
Minister of Finance
Attention: Comments on Report of the Expert Commission on Pensions
c/o Pension and Income Security Policy Branch
5th Floor, Frost Building South
7 Queen's Park Crescent
Toronto, ON M7A I Y7

Dear Minister:

Re: IFIC Comments on Final Report of the Ontario Expert Commission on Pensions

The Investment Funds Institute of Canada (IFIC) welcomes the release of the "Final Report of the Commission: A Fine Balance – Safe Pensions – Affordable Plans – Fair Rules" (the Report) and congratulates its author, Harry Arthurs, and members of the Ontario Expert Commission on Pensions on the breadth and thoughtfulness of the Report's analysis and conclusions. IFIC is the voice of Canada's investment funds industry, including fund managers, retail fund distributors and service organizations.

For over 75 years, Canada's mutual funds industry has been instrumental in helping Canadians save for what is important to them – be it retirement, their children's education, a new home or starting their own business – by fostering a savings culture and providing capital markets access to even the starting investor. Mutual funds represent approximately 30% of Canadians' financial assets and are the long-term savings vehicle of choice for many Canadians, particularly as there are virtually no dollar barriers to starting a mutual fund account. Indeed, some IFIC member companies offer savings programs that start at as little as $25 a month for investments; these investments meet the changing needs and risk preferences of clients throughout their lives.

CORE PRINCIPLES: In providing comments on the Report and proposals under consideration in other provinces, we are guided by the following core principles:

  • We believe we should be pursuing national solutions. In view of Canada's increasingly mobile population and the challenges of inter-provincial legislative differences, we endorse the Report's recommendation of a national summit on pension issues, to ensure that Canadians' retirement needs are discussed and addressed, in a harmonized manner, avoiding a province-by-province approach that would create more fragmentation and investing public. We recognize the concerns raised during pension reviews in Alberta, B.C. and Nova Scotia regarding the current retirement savings landscape, and we think that the nature of these concerns lends further support to the need for national, rather than provincial or region-specific, approaches.
  • We believe policymakers are currently facing two distinct though linked challenges with respect to pension plans and the retirement savings framework – one cyclical, needing a short-term solution, and the other structural, requiring discussion of more permanent answers. The solutions to each should be examined to ensure they are solving the problem they are designed to address without negatively impacting resolution of the other challenge. The short-term cyclical challenge results from the global economic and financial market downturn on retirement savings and pension plan viability. The longer-term structural challenge is how to promote increased saving by those already saving for retirement, how to get those who do not currently save to start, and how to ensure the long-run viability of pension plans as the ratio of employed to retired pension plan members declines.
  • While strongly promoting savings among all Canadians, we favour individual choice and believe that any long-term retirement solutions must provide both the flexibility and the advice that will allow each individual Canadian to manage through his or her life. There are legitimate reasons for low savings rates, especially among those with modest incomes. Not saving may be an appropriate, economically rational decision for those struggling to provide essentials such as housing and food, and to divert spending to retirement savings may be inappropriate and indeed harmful. Others may start and then postpone saving for retirement to buy a house, or finance education or a new business. While the simplicity of a "one-size-fits-all" solution to retirement savings may seem attractive, life events are never that straightforward. Fears of legal liability add to confusion and make it more difficult for employers to provide, and for workers to obtain, some of the retirement benefits that they want or the clarity of advice they need for balanced decision-making.
  • We believe that Canada's current retirement savings model has served Canadians well and that its private and public stakeholders (employers, employees/the self-employed, governments/taxpayers and financial service providers) are all important contributors that should be included in any future retirement savings model – while valuing the important role of the public sector, we believe in private-sector solutions with government helping to address the legislative or systemic obstacles impeding greater savings. The current Canadian model respects the role that each stakeholder plays in savings growth. Changing one part of the current dynamic will affect the roles played by the others and these impacts need to be carefully considered, especially as changes may have unexpected and negative consequences on the well-being of Canadians and the Canadian economy.

A FINE BALANCE: We agree with the Report's description of the challenges facing us all being one of achieving "a fine balance," whether between longer-term and temporary issues, saving for retirement and for other purposes, different jurisdictions, different parts of the retirement savings model, public and private-sector workers, working and retired employees, unionized and non-unionized workers, and so on.

Some solutions to the challenges are known and include, among other things, a broad-based approach to improving financial literacy from the school level, as well as taxation system changes to provide further incentives for savings. IFIC and its members continue to advance changes to tax rules to make saving easier, to press for greater financial literacy – starting at the school level – for Canadians, and to encourage smart, fair regulation to ensure the benefits of regulation exceed regulatory costs born by investors.

In its efforts to improve retirement savings for Canadians, Canada starts from a position of relative strength compared to many other countries due both to conscious steps taken some years ago to put government pension plans on a more stable financial footing and to a younger population than in a number of European countries and Japan. That said, we believe that we need to treat the underlying causes of the structural challenges identified rather than symptoms to avoid perpetuating old or creating new problems. We do not think that anyone yet has all the answers –and we are not even sure all the relevant questions have been investigated or even asked.

NEED FOR FACT-BASED DECISION-MAKING: Despite the considerable analysis done to date regarding pension and retirement savings questions, we strongly agree with the Report's conclusion that the data available to support decisions must be improved for the information to form the basis for future pension policy. The attached questions and hypotheses raise only some of the issues where we either do not have enough information, or there is no agreement on the conclusions to draw. These are just examples of where we believe there should be more carefully examination before deciding on solutions to the structural challenges in the retirement savings framework.

IN CONCLUSION: As Mr. Arthurs wrote: "In a complex, highly regulated field such as pensions, where arrangements involve the fortunes and lives of many people over many decades, a burden of persuasion rightly rests on proponents of change to demonstrate the 'new' will constitute an improvement over the `old'." This does not mean "do nothing" – far from it. It means that relevant data should be collected to allow informed discussion and decisions. It means there is value in a national pension summit to agree on national solutions as much as possible, at least to the structural problems, consistent with the efforts of the Canadian Association of Pension Supervisory Authorities (CAPSA) to promote simplification and harmonization of pension rules.

We look forward to participating in any future work on these important matters and would be pleased to provide any additional details about or clarification of our comments. Barbara Amsden, IFIC's Director of Research and Strategy (416 309-2323;, would be happy to help you with any such information requests.

Yours sincerely,

Orginal signed by

Joanne De Laurentiis



While significant study has already been undertaken, we believe there remain many unknowns.

  • For the employee or self-employed person: There are a large number of complex socio­economic and behavioral reasons why some people do not save enough and others do not save at all – they include, most notably, inadequate income, insufficient incentives to save and the lack of investment knowledge. We do not believe that there is a sufficiently clear enough understanding, based on data, of where the real problem areas in personal savings are beyond these reasons and what could be done to address the problems. In this regard, we recommend a re-survey of Canadian households based on Statistics Canada's 1999 Survey of Financial Security (SFS ) so that we are not making the wrong decisions based on the "average Canadian", who does not exist. This study measured net worth and changes in net worth at the household level, segregated by income level, age of primary income-earner, family types, province, and so on. Questions regarding the types of assets and liabilities held by households and their relative liquidity could be answered as well. Had such data been available, this might have better identified potential threats to the household balance sheet and allowed an earlier focus on growing risks. In the period since the turn of the century, we saw run-ups in the value of financial and non-financial assets, that may have been perceived by many as savings for retirement, but that were not adjusted to take into account the equally significant run-up in debt and increasing expectation of a correction in both financial and real estate values.
  • There are other reasons for a lack of saving that may be less obvious, even from the above study, for example, the heightened need for precautionary cash balances on the part of the self-, part-time, seasonally or multi-employed individual for whom the 'locking-in' feature of current plans provides a disincentive to save. Another issue is the growing number of registered plans currently available to Canadians, including registered retirement savings plans (RRSPs), registered education savings plans (RESPs), registered disability savings plans (RDSPs), tax-free savings accounts (TFSAs), employer pension plans and so on, and the consequence of any new plans potentially to create added 'plan confusion' for Canadians. Would providing Canadians with new incentives to save, with clear and concise information about why to save, savings choices, tax and cost consequences, i.e., improving the current system, be a better approach than a complete change in system?
  • For employers: The Report recommends a review of advantages and disadvantages of expanding the mandate of the Canada Pension Plan or creating a comparable provincial plan as proposed in some quarters, including Alberta and B.C. Such recent recommendations have proposed a new structure aimed at significantly reducing employer administrative, legal, economic and regulatory challenges. But limiting access to the proposed simplified rules to plans established and run by government would leave employers and people with existing pension plans, or those preferring product options and features only available from private sector plans, disadvantaged. Should policy-makers first change existing laws to promote increased participation in current pension/retirement savings options by employers before turning to yet other alternatives?
  • For governments: Do policymakers (and Canadians) believe in personal responsibility and choice or a mandatory approach to increasing savings? Can businesses afford benefit cost increases that may be associated with a new plan or would they seek to keep salary and benefit costs equal, meaning lower salaries for employees or fewer jobs? How will a shift in the equilibrium between public and private sector affect competition, innovation, flexibility and the range of services available to the smallest through to the largest investor? Looking at the advantages and disadvantages of a new govemment-co-ordinated structure, a one-size-fits­all locked-in plan will not address the varying needs of Canadians (i.e., it is possible to withdraw money for emergencies from RRSPs). And, while economies of scale are a vital factor in lowering the costs of any plan, cost is just one of many factors affecting take-up rate, with other factors being flexibility and advice.
  • Particularly regarding the importance of advice, a recent study by Sheppell.fgi (a large provider of employee assistance programs (EAPs); organizational health and training; and health management services for employers) shows that on average, 55% of worker inquiries to EAPs related to financial issues, including 15% requesting more proactive financial planning. There was a further 20-40% spike in cases pertaining to financial issues in 2008. Financial advice should therefore not be disregarded under any proposal that considers a single government-sponsored plan as advice is a part of group RRSPs, DC plans and personal RRSPs, taking into account different risk preferences and employee profiles. Canadians want to know how much they will need to save to retire with the lifestyle they want and what investment vehicles are most suitable for them to achieve retirement and other personal goals.
  • For taxpayers: Solutions in other parts of the world are cited as examples of new directions, but it is not evident that certain proposed fixes to Canada's current system will not materially address Canadian problems. In looking at models beyond Canada's borders, have we taken into consideration how the models these countries were moving from compares to the Canadian model? And have transition issues been considered? The U.K. is adopting a model that has a five-year implementation period – five years of costs for taxpayers before measurements can start to be taken to assess the benefits of results. Would it be useful for Canada to observe developments in that country, which has more serious retirement savings problems than in Canada due to its greater retired to working population, for a period to benefit from lessons learned?