Pension dollars are a boost for Canada’s economy, study says

December 16, 2021

A new study has found that every $10 of public sector pension that is paid out to a retired member returns $16.72 of activity in the Canadian economy.

The study was produced by the Canadian Centre for Economic Analysis on behalf of the Canadian Public Pension Leadership Council.

Save with SPP spoke with Derek Dobson, CEO and Plan Manager of the Colleges of Applied Arts & Technology Pension Plan (CAAT) and a Co-chair of the Council, to further explore the survey’s results, and to talk generally about the value of pension programs.

He notes that the study is “agnostic” about what type of pension plan is producing the $10 spent by its retired members.

“Any plan that uses experienced investment professionals, and pooling – I include the Saskatchewan Pension Plan as an example of that – is delivering pensions efficiently,” he explains. So whether the $10 is produced by an efficient defined benefit (DB) plan or an efficient defined contribution (DC) plan, the economic benefits are the same.

The study noted that – looking at public sector pension plans only — $82 billion of economic activity was generated in 2019, “supporting 877,100 jobs and $33 billion in wages for Canadians,” according to the study’s executive summary. Governments gain $21 billion in tax revenue, the study notes. Collectively, Canadian public sector DB plans have an eye-popping $1.27 trillion in assets.

While the study found pension spending generally benefited all Canadians, one interesting aspect was that rural businesses seemed to derive more positive gain from local public sector pensioners.

Dobson says part of the reason for this may be the current trend towards a migration from expensive city living to more affordable smaller centres. “The housing is more affordable in smaller cities and towns,” he says. “We also found that those living in smaller towns tend to spend more locally than those in cities – so that is part of the reason the economic benefits of pensioners had a 6.5 per cent bump” in rural areas when compared to urban centres.

Given the “win win” nature of having a good pension plan – the retired member gets the steady, predictable income, while the economy benefits from it being spent – we asked Derek Dobson if there should be wider availability of good pension plans for those who lack them.

CAAT’s own DBplus pension plan, a program that offers a strong, secure lifetime pension program, has grown in just two years to include 200 participating employers. “We are trying to remove barriers to access to good pensions,” Dobson explains.

A good pension, he explains, has the added benefit of helping employers attract and retain good employees. It delivers twice the retirement benefits per dollar saved than investing independently in Group RRSPs, and helps employees reach their retirement goals faster with employer-matched contributions. Dobson says it is a shame to see well-trained healthcare workers and engineers leave the country for jobs elsewhere – a good pension program can keep them here in Canada.

Another advantage for employers is that if a pension plan is offered by a third party rather than being administered and funded by the employer, it’s a time, risk and funding relief for the employer. “No Chief Financial Officer in the private sector wants to see pension liabilities on their balance sheet,” he explains. With DBplus, the employer’s pension cost is a fixed amount.

“Many studies have shown that year after year, more and more Canadian workers are willing to forego more pay in order to get a better pension,” he says.

The only three organizations he currently sees as trying to bring pension coverage to underserved sectors are CAAT, through its DBplus program, the OPSEU Pension Trust, through its similar OPTrust Select plan, and the Saskatchewan Pension Plan through its voluntary, open defined contribution program.

Dobson concludes by saying that Canada has become known around the world for the efficiency of its pension system, the “Maple Model” of pension plan that feature pooling, low administration costs, expert investing, and joint governance where members and employers have an equal say in how the systems are run.

“Public service pension plans are an amazing and unique asset for Canada. So the more people that can be brought in, the better – pensions really help workers, retirees, their families and the economy.”

We thank Derek Dobson for taking the time to speak with us.

Did you know that the Saskatchewan Pension Plan has, according to its 2020 Annual Report, has more than $528 million in assets and 32,613 members? This growing open defined contribution plan is designed specifically for those without a workplace pension – a made-in-Saskatchewan solution to the problem of retirement saving for individuals and businesses. Check them out today.

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CAAT, Canadian Centre for Economic Analysis, Canadian Public Pension Leadership Council, Colleges of Applied Arts & Technology Pension Plan, CPPLC, Derek Dobson, Economic benefits of Canadian public sector pension plans, group registered retirement savings plan, Group RRSP, OPSEU Pension Trust

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