Defined Contribution (DC) Pension Plans
Our 2009 communication entitled “Retooling Canada’s Ailing Pension System Now, For the Future” needs to be supplemented with a separate position discussing Defined Contribution (DC) pension plan arrangements.
A growing number of Canadians belong to Capital Accumulation Plans (CAPs), which include registered DC plans, and group Registered Retirement Savings Plans (RRSPs).
The CAP system is in need of improvement.
- Plan members have suffered losses, and future rates of return are expected to be lower. Higher contribution limits may be warranted.
- Provincial rules governing CAPs are not uniform, making the administration of CAPs unnecessarily cumbersome and expensive.
Although the CIA is actively working on the creation of an environment more conducive to the reinstatement of defined benefit (DB) plans, it also recognizes the positive role of CAPs in Canada’s pension system.
Both DB and DC plans have positive features, and under certain circumstances, one may be more appropriate than the other.
Contribution limits to CAPs need to be revisited, especially in light of the new economic context.
Provincial rules governing CAPs need to be harmonized.
More focus needs to be placed on the payout phase of CAPs, as this phase has tended to be ignored. Recommendations for an appropriate schedule of payouts should be made. Historically, most of the focus has been on the accumulation phase.
Canadians should have access to more information that allows them to understand the risk factors associated with the use of CAPs for providing an adequate retirement income, which would help them manage these risks in a timely and effective manner.
Fees for different types of plans can vary greatly. The public would be well served by an analysis of these fee structures, which would help them understand the additional costs associated with retirement savings systems.