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1CanadianRetirementSavingsProgramsandRussianPensionReformJoelFriedDecember20011.IntroductionOneaspectofthecurrentmovetowardtaxreforminRussiaisthereformofthepensionsystem,asystemthathasbeendecimatedbytheeventsofthelastdecade.Asaresult,Russiaeffectivelybeginsthisreformwithacleanslate.Canada,ontheotherhand,hasasystemofpensionsavingandsupportforCanadianseniorsthathasevolvedslowlyoverthelastcentury.OverthatperiodCanadahashadtograpplewithmanyofthesamepensionandperipheralsavingsissuesRussiaisconcernedwithatthepresenttime.WhileCanadiansarewellservedbytheplansnowinplace,thenatureoftheprocesswasnotwithoutitsproblemsandisstilloneofcontinuingevolution.ThisessaydescribessomeofthemajoraspectsoftheCanadiansavingsplansandtheirpastevolutiontoprovidesomehistoricalperspectiveasRussiaconsidershowtostructureitsownsavingsplanstobestserveitscitizens,bothduringandafterthetransitiontoamodernwesternstyleeconomy.IfsomeofthemisstepsCanadahasmadeinthepastcanbeavoided,thenRussia’smovetoapreferredsystemwillbemorerapidthanotherwise.Avoidingthosemissteps,evenknowingtheirconsequences,may,however,bedifficult,principallybecausetheymayhavesomeappealinresolvingthetransitionalproblemsnowconfrontingRussia.Whiletheultimategoalistogetasuperiorsystemofsupportforseniors,itisimportanttoknowwhetherornotcompromisesmadeforthetransitioncanbereversed.InthenextsectionIprovidethebasicbackgroundoftheCanadianretirementsavingsplans.Insection3,IdescribetheviewsofCanadianpensionindustrypractitionersonhowtheCanadiansystemcanbefurtherimprovedupon,andinsection4IdiscusssomeofthewaystheCanadiansystemhasrespondedtothetypesofproblemsthatcurrentlyconfrontRussia.Section5brieflyremarksonthecurrentRussianpensionreformandsection6concludes.2.TheCanadianRetirementSavingsPrograms.TheCanadiansystemforthesupportoftheelderlyisoftencharacterizedasrestingonthreepillars:(1)ameanstested,taxfinanced,minimumpension,(2)anemploymentbased,mandatorypensionplantowhicheveryoneintheworkforcebelongs,and(3)voluntary,fullyfundedretirementsavingsplans.2Thefirstoftheseishandledbytwogovernmentprograms,Theprimaryone,theOldAgeSecurityprogram(OAS)isfundedonapay-as-you-gobasisfromgeneraltaxrevenuesandhasbeeninexistencesince1927.Untilrecentlythisprogramhasbeenuniversallyappliedsothatallseniorsobtainedthesamedollaramountofbenefits.However,beginningin1989,thegovernment,inneedofadditionalrevenue,restrictedpaymentstomorewealthyseniorsby“clawingback”some,orall,ofthebenefitspaidtothem.Asaresult,seniorswithincomebelow$55,000receivetheentirepaymentwhilethosewithincomesabove$90,000receivenonetpayments.1Asaresultithasnowbecomeafullymeans-testedprogram.ThesecondprogramistheGuaranteedIncomeSupplement(GIS)which,fromitsinceptionin1967,hasbeenfullymeanstestedandavailableonlytoseniorswithincomelevelsdeemedtobebelowthepovertyline.It,too,isfinancedfromgeneraltaxrevenues.WiththeremovaloftheuniversalityconditiononOASthesetwoprogramsaddressthesameissue,ensuringthatasocialsafetynetexistsforseniormembersoftheCanadiancommunity.Thattherearetwoprogramsmeetingthisneedismostlikelybecause,atthetimeOASwasinstituted,pillartwowasnotinplaceandOASservedasaproximatecompromisetomeetthatneed.Withbothprogramsinplace,thetwoprogramsnowactasasingleprogressivetransferprogramtoinsureabasicminimumlevelofwelfareforallseniors.Forthesecondpillar,CanadahastheCanadianandQuebecPensionPlans(CPP/QPP)whicharemandatory,partiallyfunded,plansforeveryoneintheworkforce.Contributionsareintheformofpayrolltaxesof8.6%,2uptotheyearlymaximumpensionablewage,roughlyequaltotheaverageindustrialwage.Theseprogramsbeganin1967,andretireesatthetimetheprogramwasintroducedwerenoteligibleforitsbenefits.Thus,therewasanattempttoachieveatleastpartialfundingoftheprogram.Whenestablishedthepayrolltaxwas3.6%.Untilrecently,theassetsthatcouldbeheldintheCPPwererestrictedtoprovincialandfederaldebtatratesfavourabletotheprovinces3.In1997aninvestmentboardwasestablishedtoinvestinabroaderrangeofassetsincludingequities.Canada’svoluntaryretirementsavingsplanscanbedividedintotwotypesthatreceivesomegovernmenttaxrelief.4Companyretirementpensionplans(RPPs)aregenerallyfundedfromcontributionsofthecompanyand,generally,theworker.Theotherplanistheregisteredretirementsavingsplan(RRSPs)thatareavailabletoallworkingindividualswhetherornottheyalsobelongtoacompany-sponsoredRPP.Companyretirementpensionplanshadassetsestimatedat$750billionin19995.Thetypesof3planscanbeeitherdefinedbenefit(DB)ordefinedcontribution(DC).Theformeristhelargestinbothmembershipandassetsbecausetheyareconcentratedinthelarger,moreunionized,sectors.SmallandmediumsizedbusinesseshavetendedtooptforDCplans.RecenttrendsshowamovementtowardDCplans.Thereasonsforthismovementarevaried.Fromthefirm’sperspective,theregulatoryenvironmentisbothmorecomplexandmorerestrictivewithDBplans.Further,theincreasingmobilityofthelabourforceovertimehasmeantthatDBplansareatacompetitivedisadvantageinattractingworkers.Afterall,tohireandretainworkers,thefirmmustprovideanattractivepackageofbothwagesandfringebenefits,ofwhichthepensionplanisamajorcomponent.IfafirmoffersaDBplan