Turning thought into action to strengthen Canada’s retirement income system

Plan Sponsor Exchange - 2020 Conference Coverage

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KeithWith Canada ranking only ninth out of 37 countries on the Melbourne Mercer Global Pension Index, more can be done to move it up the list, said Keith Ambachtsheer, director emeritus at the International Centre for Pension Management, speaking at the Canadian Investment Review’s Plan Sponsor Exchange conference in February.

Canada has an aging demographic and only one-third of its workforce is covered by workplace pension plans. “We did increase the Canada Pension Plan somewhat, but for a lot of people in the middle-income bracket that’s not enough to . . . maintain their standard of living,” he said.

When looking at the pension index, countries that ranked better than Canada all have mandatory workplace pensions or very strong workplace plans, he noted. “It makes a big difference.”

This begs the question of whether there are actions to take, short of mandating workplace pension plans. In the U.K., for instance, employees are automatically enrolled in their workplace pension plans, but can opt out.

Further, Canada is missing a process for assessing the status of its pension system, Ambachtsheer added. Finland, for instance, has a National Pensions Institute charged with assessing its overall system, making recommendations and ensuring they’re instituted. “We don’t have anything like that.”

As well, within workplace pension plans, he urged Canadians to stop focusing on defined benefit versus defined contribution since DB plans are moving away from strict guaranteed benefits, while DC plans are moving towards more collective ideas.

“You’ve seen, in the public sector, a lot of movement. Conditional inflation protection, for example, is a classic example of moving away from hardcore DB. And on the DC side, it’s just very obvious that we have to start thinking about the decumulation phase and I’m still shocked to some degree that we haven’t figured this out better than we have.”

It’s also key to reconsider the notion of retirement for Canada’s aging demographic, he said, noting a retirement age of 65 is an outdated social construct. “We talk about chronological ages, but there’s also something called biological age.”

For example, researchers in Switzerland have found today’s 65-year-old — in terms of physical and mental abilities — is equivalent to a 51-year-old in the 1950s. “We didn’t retire at age 51 in 1950. So why are we retiring people at age 65 now?”

Ambachtsheer also called for the discontinuation of the word retirement. He noted Canada can do more to move towards flexible working arrangements for the aging workforce, such as part-time employment, and could benefit from reconsidering the value of older workers.

Since two-thirds of the workforce aren’t in workplace pension plans, many employees are forced to rely on their own savings for retirement security. “There’s a lot of research that suggests that’s not a great idea,” he said.

In addition, while Canada can do more to educate people about investing, behavioural finance suggests most individuals would rather be enrolled in a default scheme, which Ambachtsheer views as a reason to get more Canadians into workplace pension plans.

Overall, increasing workplace pension coverage for Canadians isn’t a thought leadership problem, but rather a problem of inaction, he said, noting there’s robust research and great ideas about enhancing outcomes. “We’ve got an action leadership problem of leaving this stuff on shelves and not following through on things to their logical conclusion in a way that some other countries have actually done.”

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