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Discussion Wednesday

What lies ahead for pensions?

Globe and Mail Update

There's a serious flaw with tax policy, according to Paul Forestell, leader of the retirement professional group at Mercer.

"They should allow individuals to fund shortfalls," he told the Globe's Janet McFarland last week.

And as Ottawa considers what kinds of retirement and pension provisions to put into the budget on Tuesday, he calls on the federal government to raise the financial contribution limits for individuals with defined-contribution pension plans and registered retirement savings plans, and make it easier for employers that fund pension plans to make up deficits.

Unlike traditional pension plans that provide a guaranteed income in retirement, defined-contribution plans pay a return to workers that depends on the performance of their investments.

Mr. Forestell said it is unfair that sponsors of traditional pension plans can put additional money into the plans to repay funding shortfalls caused by declining investment values, but individuals do not get more contribution space to put money into personal retirement savings when their investment values plunge.

Mr. Forestell joined us for a discussion about the Canadian pension environment, and what any changes might mean to your retirement savings. Thanks to all those who submitted questions.

Mr. Forestell, F.S.A, F.C.I.A., is a Worldwide Partner and the leader of Mercer's Canadian Retirement Professional Group, based in the Toronto office. He is also a member of the Canadian Retirement Operating Committee.

He joined Mercer in 1992. A senior pension consultant to both public and private sector clients, he leads Mercer's government lobby efforts to affect change to pension legislation.

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Claire Neary, Reportonbusiness.com: Thanks a lot for joining us today, Paul. We've received a lot of questions, so we'll get right to them.

I'll start off with a general question. Given the significant losses in all kinds of pension plans over the past year, how much pressure is the government under to make changes in this area?

Paul Forestell: All governments in Canada, provincial and federal, are feeling the pressure on retirement savings in Canada due to the losses that occurred in 2008. Evidence of this is that nine separate governments announced some form of funding relief for defined benefit pension plans in the latter part of 2008. Looking just at the Federal government they announced temporary funding relief in 2008 and just last week indicated that they will be reviewing pension rules in general during the first half of 2009. To date the focus has been on defined benefit pension plans and the federal government has been quiet on defined contribution pension plans and RRSPs.

LOU Padula from Montreal: Defined contribution plans suffer from two serious flaws: 1) Individuals are not necessarily knowledgeable to manage their own pension investments. 2) Companies are not prepared to assume the responsibility for investing on behalf of the employee, or training the employee adequately to make appropriate long term investments.

Defined contribution plans were introduced, so that employers would not have the liability of meeting the employees' promised pensions, and the cost associated with same. In this the defined contribution plans have worked very well for the employer. They have however left the employee high and dry.

One suggestion I would like Mr. Forestell to comment on, is: Why not provide an option in the defined contribution plan for an employee to contribute his and his employers' defined contribution contributions to the CPP or QPP, thus allowing individuals to increase the amount of CPP or QPP they would receive at retirement. I appreciate that this would not be very attractive to the financial industry, however if we truly want to help the employee get a pension, this would be the surest way of achieving it.

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