More Canadians need access to better pensions: Ambachtsheer

Writing in The Globe and Mail, noted pension expert Keith Ambachtsheer says our ever-growing senior population would be better served if they — and the rest of us — had access to better workplace pensions.

He notes that Canada’s retirement system is ranked 11^th out of 44 countries via the Mercer CFA Institute Global Pension Index. What’s needed to boost that ranking, Ambachtsheer contends, is to make the type of pension plans that public sector workers have widely available to the rest of the population.

“Canada,” he writes, already has “one of the best occupational pension systems in the world for its public-sector workers. Globally admired as `the Canadian pension-fund model,’ it efficiently converts regular contributions into lifetime retirement income streams for its public-sector members. At the same time, investment organizations using the model are at the leading edge of converting retirement savings into sustainable, wealth-producing capital. This system needs to be expanded to everyone else.”

The number of senior citizens, he observes, is on the rise. Citing Peter Drucker’s 1976 book The Unseen Revolution, Ambachtsheer notes that the author foresaw “the young, outsized baby boomer generation of the 1970s eventually becoming an outsized generation of retirees, and advocated creating pension organizations with two key features: legitimacy and effectiveness.”

Ambachtsheer lists governance as an important attribute of the most effective pension plans. “Pension arrangements must be structured to always act in the best interests of the plan risk-bearers,” he explains.

The plans should ideally “have an accumulation pool that focuses on investment return generation, and a separate decumulation pool that provides lifetime income.” You contribute to the investment pool during your working life and receive benefits from the decumulation side when you retire, he explains.

The Canadian model pension plans also feature cost-effective management and “value-adding investment programs that turn retirement savings into wealth-producing capital,” writes Ambachtsheer. Another feature is the ability to provide lifetime pensions to plan members, he adds.

So how do we go from what we have now — a situation where there are many workers without any sort of retirement program at work — to one where most of us are in a Canadian model plan? Ambachtsheer sees three ways to achieve this change.

First, “existing Canadian pension-fund model organizations” could “offer their pension management infrastructure to private sector employers,” he notes. This is already being done by a few larger pension funds, such as Ontario’s Colleges of Applied Arts & Technology Pension Plan (CAAT).

Save with SPP interviewed CAAT’s Derek Dobson on this topic a few years ago.

Another approach would be to have “a government entity decide to create a Canadian pension-fund model organization for private-sector workers and retirees,” an idea that has worked in some U.S. states and in Great Britain, he writes.

Finally, he suggests that the private sector create “one or more new Canadian model offerings,” making better pension plans available to the private sector. He writes that Common Wealth and Purpose Investments offer programs that provide end-to-end coverage, including lifetime pensions.

Our own Saskatchewan Pension Plan, which is open to any Canadian with available registered retirement savings plan (RRSP) room, already has some of the Canadian model features — investments are pooled, professionally managed and governed at a low cost. SPP offers, through its annuity features, a lifetime pension for its members. If you don’t have a pension plan at work, you can join SPP as an individual — or, if you are an employer, you can look into offering it as a pension for your employees. Check out SPP today!

Great news — the savings opportunities with SPP are now limitless! You can transfer any amount you want into SPP from an RRSP, and you can make contributions based on your entire available RRSP room. It’s a great way to build your SPP retirement nest egg more quickly!

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Survey suggests we’ll work longer and have less retirement income

Writing in the Globe and Mail, Ian McGugan takes a look at a new survey from Mercer Canada that he says suggests “the recession created by the novel coronavirus (has) delivered a stinging blow to many retirement systems, including Canada’s.”

According to the article, David Knox, an author of the 2020 Mercer CFA Institute Global Pension Index, says the current economic downturn “will impact future pensions, meaning some people will work longer while others will have to settle for a lower standard of living in retirement.”

Worse, the article reports – women will suffer more than men from this situation.

“Many of the hardest hit will be women. They have suffered disproportionately large job losses in this downturn because many work in sectors, such as restaurants and retailing, that have been hardest hit by lockdown restrictions,” writes McGugan.

As well, Mercer’s Scott Clausen tells the Globe, the traditional “caregiver role” of women means they have tended “to work part-time or take breaks from their career, which reduces their ability to make pension contributions and accumulate time in a pension plan.” The pandemic, Clausen suggests in the article, has made this retirement savings disparity even worse.

Despite these apparent systemic problems, the Globe notes that Canada recently was ranked 9^th out of 39 industrialized nations in meeting the retirement challenge, with a “B” rating.

There’s a second side to the story, the article continues. Not only are people facing challenges in earning money and paying into pension plans, but the pension plans themselves are having a tough time of things, the Globe reports.

Again citing the report, McGugan notes that “a major challenge for retirement planners everywhere is the falling returns from most pension assets. Declining bond yields, reduced company dividends and lower rentals from property investments have shrunk prospective returns.”

In an interesting sort of paradox, the country whose pension system is rated number one in the industrialized world (in the same Mercer survey) is having problems meeting its funding targets. Two large pension plans there may have to cut pension payments next year, reports Dutch News.

“The two biggest Dutch funds, the giant civil service fund APB and the health service fund PFZW had failed to meet official targets in the third quarter of this year. Both funds’ coverage ratios – the assets needed to meet their obligations – had fallen below 90 per cent in the July to September period. If this is the case in the final quarter of the year, they will have to make cuts to pension payouts in 2021. The two big engineering funds are also in the danger zone. Together the four funds cover some eight million pensioners and participants,” the news agency reports.

The key messages here are quite simple – due to the health crisis, many of us are working less, and others not at all. It’s difficult to save for retirement, either in a workplace plan or on your own, if you are earning less overall. At the same time, it’s tough sledding on the investment side for the world’s pension plans. Payouts, as in the Dutch example, could be less.

Members of the Saskatchewan Pension Plan (SPP) have the ability to set their own contribution levels – there’s no set percentage of income that automatically comes off your pay. If you’re making less, or nothing at all, you can reduce or pause contributions without affecting your membership – and when better times return, you can ramp them back up again. Take a minute to check out the SPP today!