A multi-employer defined contribution (DC) pension plan permitting all employers and the self-employed to automatically participate would greatly increase pension coverage, believes Tom Reid, senior vice-president for group retirement services at Canadian insurer Sun Life Financial.
He expressed this view in an address to the Canadian Pension & Benefits Institute’s annual pension summit on 24 November.
“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,” Reid told delegates.
Reid explained that, under his proposal, employers joining the DC plan would select a provider and all the company’s employees would automatically be enrolled.
He added that although employers could opt out, Sun Life believed employment market pressures and what he termed the “gentle push” of automatic enrolment and low fees would lead to widespread participation. Another spin-off would be a “significant increase” in Canada’s retirement savings rate, he stressed.
On the question of fees, Reid said many factors would determine the cost of his proposed solution, such as participation rates, annual deposits and asset balances.
However, he believed that a multi-employer DC pension plan would achieve the same scale advantages that larger employers enjoy.
Specifically, Reid explained that Canadian group plans pay, on average, lower fees to their pension plan providers than those in the US.
He cited a June 2009 study by professional services firm which found that in the US the average fee is 93 basis points.
This, said Reid, 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.
Reid added that there have also been calls for expanding government-run plans. However, he believed his private sector solution was the right one for solving the retirement savings shortfall.
Workplace retirement savings plans providers have a proven track record and distribution network to reach small and mid-size employers, stressed Reid.
He added: “If we can knock down the barriers preventing multi-employer plans, do we really need to build a new government-run retirement investment programme?”