Canadian pension deficits soar, CGA says

The number of defined benefit pension schemes that are in deficit has doubled over the past five years to stand at 92% of the total, making retirement prospects bleak unless changes are made, an accountancy body said on Friday.

Pension funding deficits have risen from $160 billion in 2003 to an estimated $350 billion in 2008 and continue to grow, the Certified General Accountants Association of Canada said.

"Canadians ability to maintain a financially comfortable and healthy lifestyle is bleak unless the retirement system undergoes a drastic makeover," Rock Lefebvre, Vice-President of Research and Standards at CGA-Canada said in the report. "Pension plans should not operate in a manner that unduly borrows from future generations to pay the present one."

Concern Canadians are not saving enough to finance their retirement is mounting as the population ages. The government is conducting a series of countrywide consultations on how to fix the pension system, culminating in a planned summit of provincial finance ministers in June.

About three-quarters of Canadians have no corporate pension plan and are relying on vehicles such as RRSPs to fund their retirement needs. Of those who do have plans, very few have the security of defined benefits.

The CGA said the costs of defined benefit plans are unsustainable, while defined contribution plans, which set out what the worker pays in, but don’t guarantee future payment levels, are inadequate.

It suggests a hybrid model of the two systems may be the best way to go.

The accountancy body also said the tax system penalizes those who don’t have a pension scheme through their work, with RRSP limits meaning they can’t save as much as those in employer-sponsored schemes and enjoy the same tax benefits.

Various economic think tanks and industry bodies have weighed in on the pension debate in recent weeks.

The Canadian Centre for Policy Alternatives and the Canadian Auto Workers Union favour expanding the Canada Pension Plan to cover a higher level of pre-retirement income.

Those proposals have met opposition from the financial services industry and some provinces, such as Alberta, where Finance Minister Ted Morton said expanding the CPP would mean shifting the burden onto the younger generation.

Other proposals have included raising limits on retirement savings plans to allow consumers to save more. Though that option has been dismissed by others who say that RRSP contributions are not being used to their full potential now.