In the Canadian private sector, less than 25% of workers currently have an employer pension plan.
This result is that many Canadian employees face significant challenges when it comes to achieving retirement income security.
Traditional Defined Benefit (DB) pension plans were once the gold standard of workplace retirement arrangements. A DB plan is a pension plan under which an employee receives a set monthly
amount upon retirement, guaranteed for life. Changes in tax rules and other regulations, a continual decline in interest rates, and increased retiree longevity have all made DB plans too risky and expensive for most private sector employers today.
As such, Defined Contribution (DC) pension plans have become a popular alternative. Within a typical DC plan arrangement, both the employee and the employer contribute money into the employee’s individual account. The employer carries varying levels of administrative and fiduciary burden, but overall faces fewer risks. Instead, it is the employee who bears considerable risk. Perhaps most problematic is the onus on employees to figure out how to turn lump-sum savings into sufficient retirement income that will support their financial needs until death. This is no easy feat.
It’s fair to say that neither the traditional DB or DC pension scheme models are optimal. For a more complete discussion, read “The Great Pension Debate”.
The Ideal Canadian Pension Plan’s multi-employer, collective defined contribution plan strikes a winning balance for employers and employees. Like a DB plan, the ICPP delivers reliable lifetime retirement income to employees and takes the worry out of retirement planning. Like a DC plan, it greatly reduces employer risk and costs. Even better, the ICPP further reduces employer hassle with outsourced administration and governance by an independent management board. Read more about the ICPP Advantage.
With its better plan design, the ICPP can ensure more private sector Canadian employees have access to a lifetime pension and peace of mind in retirement.