This article was published in the Financial Post November 23rd 2009
TORONTO — The swell of negative pension news continues. RBC Dexia released a poll Monday revealing that the majority of Canadian plan sponsors are pessimistic about the future of their pension plans. According to their survey, 89% of defined-benefit plan sponsors are concerned that the pension system is poorly positioned to deliver on its promises.
Just weeks before the Dec. 17-18 meeting in Whitehorse between the provincial finance ministers and Jim Flaherty, Minister of Finance, in which pension reform will be a major topic, the RBC Dexia results serves as yet another warning about the problems inherent within the system.
The biggest concern expressed by respondents is investment risk. With markets in a free fall last year, 41% of plan sponsors expressed fears over bad returns. Not surprisingly, their second-greatest fear is that plans will not generate sufficient returns to offset obligations.
Despite concerns over the pension system, the survey revealed some contradictions. Despite their overwhelming pessimism, 72% of respondents also rank Canada’s pension system as equal to, or better than, other systems globally, and 8% believed our system to be inferior to its global counterparts.
“There is recognition that it could be worse and (we) don’t want to throw out the baby with the bath water,” said Scott MacDonald, head of pensions, financial institutions and client service for RBC Dexia. But he also said the fact that 20% of respondents had no opinion on Canada and other approaches out there reveals “a community out there lacking context.”
The RBC Dexia poll comes on the heels of another plea last week by Keith Ambachtsheer, director of the Rotman International Centre for Pension Management. Using C.D. Howe Institute as his pulpit, Mr. Ambachtsheer argued that Canada’s supplemental pensions, such as the Canada Pension Plan, Quebec Pension Plan and Old Age Security, “are increasingly showing (their) age,” and need to be updated.
“Pension plan designs should target a post-work standard of living that is adequate, achievable, and affordable,” Mr. Ambachtsheer said.
Several provincial studies prove that almost half of middle and high-income workers in this country will not be able to maintain their desired standard of living in the next 10 years, he says.
In addition to arguing that all forms of retirement saving should receive equal tax, regulatory, and disclosure treatment across all sectors of the workforce, Mr. Ambachtsheer has called for national, regional or group-based supplemental pension plans for workers without an employment pension plan.
“So far, three proposals to increase pension coverage have gained currency in Canada over the course of the last year,” said Mr. Ambachtsheer. The first proposal has been made in various forms by Canada’s insurance and mutual-fund industries. The second involves an expanded Canada Pension Plan, while the third option is the creation of a new supplementary pension plan either at a regional or national level.
He hopes the new Federal-Provincial Working Group on Pension Reform will hammer out a supplementary pension fund solution so Canadians will receive better coverage upon retirement.