5,000 Canadians Retiring Every Week

Pressure mounts on pension industry to manage longevity risk.

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lots of candlesBy the end of January, there will be enough new retirees to fill the Air Canada Centre, Jean-Philippe Provost, senior partner and wealth business leader at Mercer, said at an event in Toronto today.

Currently, 5,000 Canadian workers retire each week, a number expected to jump to 8,000 by 2020. While retirees can expect to live, on average, seven years longer than those who retired 30 years ago, their savings may not enjoy the same longevity.

Sixty per cent of retirees rely on Canada Pension Plan, Old Age Security and personal savings, Provost told participants at Mercer’s annual retirement outlook and forecast event in Toronto. Thirty per cent have a defined benefit plan, and 10 per cent have some sort of capital accumulation plan. While Canada is currently one of six countries where defined benefit plan assets comprise more than half of the funded pension system, 30 per cent of corporate plans could be defined contribution ones by 2030. “The world is really going defined contribution, whether we like it or not,” said Provost.

Of the defined benefit plans that remain, more and more are uncomfortable managing longevity risk and are looking to de-risking strategies such as group annuities. In 2012, for example, defined benefit plans bought $2.2 billion worth of group annuity contracts, a number that jumped to $3 billion last year. This year, Mercer expects a further increase to up to $5 billion.

Employers will also have to respond to trends such as the rise of independent contractors. By 2050, Provost said, up to half of the workforce could be freelance. “It’s going to change the dynamic of what people are buying and how they’re paying for it,” he said of the impact on pension and benefit plans.

Provost also pointed out that while millennials will make up an increasing share of the workforce, only 10 per cent of them think about saving. Furthermore, just five per cent see the link between saving today and preparing for retirement. To address the issue, Provost noted, employers need to communicate with staff of all ages more often and not just when plan changes come into effect or at the start of the fiscal year.

Employers should reach out when members are willing to listen and adjust their behaviour, which varies depending on the individual. It could be when they join the company, become a parent, receive a promotion, pay off their mortgage or ask for a flexible schedule so they can take care of an elderly family member. And those milestones can occur is any order. “They could be 30 or 64,” said Provost. “We don’t know when it’s going to happen.”

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