Finance Minister Jim Flaherty is eyeing an expansion of the Canada Pension Plan, which would be accompanied by new rules allowing financial institutions to offer pensions to Canadians who lack coverage.

In a recent letter to provincial finance ministers, Flaherty explained his position on a possible expansion of the CPP.

"I believe that we should consider a modest, phased-in and fully funded enhancement to defined benefits under the Canada Pension Plan in order to increase savings adequacy in future," Flaherty said in his letter, which was sent out Thursday.

The overall strategy would be to increase CPP benefits while making changes to pension regulations that would allow banks and insurance companies to provide affordable pensions to all types of employees and employers, as well as the self-employed.

The finance minister said such changes "will help enhance retirement savings and pension coverage, without compromising our current system and without passing costs on to future generations."

Flaherty's hybrid, public-private solution is highly similar to the position of Ontario Finance Minister Dwight Duncan, who put out a letter of his own to Canada's finance ministers on Thursday.

Duncan believes that a two-pronged approach -- of bumping up the CPP and creating pension opportunities for more Canadians -- could be the key to building a national consensus on pension reform in the near future.

Both Flaherty and Duncan have rejected calls from unions and NDP members to double CPP benefits. Instead they want to see only modest increases to CPP contributions and payouts.

They also both fear that Canadians are not saving enough for their retirement -- a problem that has worsened in the wake of the recession that wiped out large swaths of private investments.

On Friday, the Liberal party issued a press release calling on the federal government to create a supplementary pension fund that would operate in addition to the CPP, which Canadians would join on a voluntary basis.

Pointing to a recent TD report that also favoured a supplemental pension fund, the Liberals said it was "a low-cost way of reducing the three-quarters of private sector workers who have no registered retirement savings."

Next week, Flaherty will attend a meeting of provincial and territorial finance ministers in Prince Edward Island. Pension proposals will be one of the hot topics at the meeting.

Flaherty has taken part in months of consultations with industry and members of the public, as Ottawa tries to strengthen the country's existing pension system.

With files from The Canadian Press