EXPANDING CANADA PENSION PLAN RETIREMENT BENEFITS Assessing Big CPP Proposals

defined contribution schemes being examined by Alberta, British Columbia, Ontario, and NovaScotia; 72 these would be publicly operated plans based on provincial or regional coverage.Common to all of these proposals is that participation would be voluntary, with the choice atthe level of the employer and/or individual employee. Some variants would include automaticenrollment of workers with inadequate workplace pensions, but even those would permitindividuals to opt out. These schemes would reap the benefits of large scale, professionalmanagement, associated low costs, and lesser need for investment skill and finesse by theindividual (hinging on the extent of investment options for each account holder). However,because participation in these schemes would be voluntary, the benefits would have to be ofdefined contribution form on account of likely adverse selection. With both voluntaryparticipation and defined contribution benefits, these schemes would fall short of the benefitcoverage and adequacy ensured by Big CPP proposals. 73Mandatory Workplace PensionsOne major policy alternative would be a mandate for all employers to provide pensioncoverage for their employees, as distinct from merely encouraging workplace plans or havingautomatic enrollment with opting-out provisions. Mandatory workplace pensions have beeninstituted in other countries, notably Australia, where experience suggests several deficienciesrelative to the mandatory public pension approach. In Australia, the government requires thateach employer contribute 9% (to increase to 12% by 2019) of each worker’s earnings to apension plan. These plans are commonly at the industry level and include accounts withfinancial institutions. They have been described, however, as typically sub-scale, entailinghigher operating costs than larger or public schemes; they also suffer from deficient participantinvesting temperament and skills, which depress returns, and from the complexity of multipleaccounts. Moreover, 87% of these Australian “superannuation” plans are in a definedcontribution format, since most employers wish to avoid the financial risks entailed in backingdefined benefit pensions. 74 More generally, the employer pension mandate policy would needto deal with possible exemptions for part-time workers and issues of minimum standards for aneligible pension plan along with allowable variations. In short, an employer mandate wouldrank inferior to a Big CPP on the basis of higher costs, higher risks for participants, greatercomplexity, and its bias toward defined contribution formats. 7572 For a brief description and sources, see Steering Committee of Provincial/Territorial Ministers, “Options forIncreasing Pension Coverage.”73 Ambachtsheer (“Pension Reform,” pp. 11-12) describes “four nudges” or default options that he asserts would raisethe rate of participation and savings adequacy, but these likely would fall well short of universal coverage and benefitadequacy on account of the steep premium hikes that participants would face. One study finds that automaticenrollment (with opting out) can increase participation in voluntary schemes; see Brigitte C. Madrian and Dennis F.Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal ofEconomics 116 (4, 2001): 1149-1187.74 Leo de Bever, “View Point: Return from Oz,” Benefits Canada (August 2008), p. 70.75 A similar critique of the employer mandate is provided by the Task Force on Income Retirement Policy (TheRetirement Income System in Canada, vol. 1, pp. 212-220). It additionally notes the prerequisite of consensus amongall the federal and provincial governments.27