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“Retirement insecurity is a common theme around the world. It’s a high priority pretty much everywhere. There is a lot that Canada does well, but … it’s very hard for low-income or moderate-income workers to earn more than the base level of retirement provided by the CPP, OAS (Old Age Security) and the GIS (Guaranteed Income Supplement).” – Alex Mazer

 

Alex Mazer

From Beijing to Washington and places between, Canada’s model of delivering retirement security is attracting positive attention.
The Canada Pension Plan investment Board (CPPIB), for example, shared the story of the country’s national plan with the Chinese as that nation looks to bolster its own retirement system. Recently, at a session this past November in Toronto, the World Bank Group issued a report, The Evolution of the Canadian Pension Model, designed to help developing nations create their own retirement systems.
Just before that, on Nov. 2, the Brookings Institution, a non-profit public policy think tank, held a session in Washington that asked whether Canada had the solutions to fix the American retirement system. Stakeholders around the table focused on the expansion of Canada Pension Plan (CPP) benefits and how Canadian public sector DB plans maintain the pension promise by avoiding the funding pitfalls that plague many American plans.
By most accounts Canada does have many of the solutions to the provision of adequate retirement income. But it doesn’t have all of them, Alex Mazer, a founding partner of Toronto-based Common Wealth, told ARIA during a recent conversation.
“Retirement insecurity is a common theme around the world. It’s a high priority pretty much everywhere. There is a lot that Canada does well, but … it’s very hard for low-income or moderate-income workers to earn more than the base level of retirement provided by the CPP, OAS (Old Age Security) and the GIS (Guaranteed Income Supplement).”
Speaking to an audience of influencers in Toronto late last year, Mark Machin, the CPPIB’s President and CEO, said the CPP is sustainable and will be there for future generations of Canadians, but by itself it’s not enough for most pensioners to maintain a pre-retirement lifestyle.
“The CPP and the CPPIB itself are held up repeatedly around the world as living proof of innovation and world-class pension management … and Canada, unlike virtually every other industrialized county around the world, has actually solved its national pension solvency issues,” said Machin, adding Canadians still need to secure additional retirement income, whether from savings in vehicles like RRSPs and TFSAs, a work pension or a combination of both.
A variety of factors make it difficult for workers on the lower end of the income scale to save for retirement, including day-to-day living costs that leave little left for retirement savings, and the shortage of occupational pensions, notably in the private sector.
This country’s retirement system, said Mazer, does a better job when it comes to matters like senior poverty, “not a good enough job but a better job,” than other countries, including the United States, but a “worse job in providing incentives for people to save.”
South of the border, for instance, Americans have a program called the Saver’s Credit which, says Mazer, provides a match and an incentive for people who are below a certain income threshold to contribute to a retirement account.
“We’d really love for that to come to Canada.”
Other examples of programs structured to help people save for retirement include the National Employment Savings Trust (NEST) in the United Kingdom, and a number of state-run programs in the United States like California’s Secure Choice Retirement Savings program. These plans feature some distinctly DB-type elements including auto-enrol and escalation, low fees and professional management.
“We think there are lessons to be learned both ways,” says Mazer.
Founded in 2015 with the goal of expanding access to retirement security, Common Wealth goes about accomplishing that by partnering with unions, associations, and groups or organizations to design and manage high-quality collective retirement income plans, with a focus on workers without pensions. The firm also has an advisory business that serves governments, pension funds, plan sponsors, and other retirement stakeholders.
“The bigger and growing part of what we do is trying to set up high-quality retirement plans for workers who don’t have access to workplace pensions … we work to set up portable plans that have as many of the principles of the better pension funds as possible, and that deliver the maximum retirement income bang for every dollar of contribution.”
The company’s first success in that area was the my65+ retirement program developed for the Service Employees International Union (SEIU) in 2017. Sponsored by the union, which represents about 60,000 people, mainly in Ontario, the plan provides a platform for low- and moderate-income workers in the healthcare field, such as personal support workers, to save for retirement.
It’s designed as a “pension-like” Tax Free Savings Account (TFSA), a “group TFSA structure,” says Mazer, specifically intended to avoid the clawback of retirement income which might come from programs like the GIS. The plan has many of the features associated with Canada’s successful DB plans, including low fees and professional management (Vanguard). It offers minimal investment choices “so that people are basically defaulted into a target date fund that is appropriate for their age.”
The plan has a non-profit fiduciary governance structure overseen by a board appointed by the union, is “portable from job to job and can be integrated with payroll.” It’s also structured to assist with the decumulation phase of retirement income.
“Unlike a lot of DC plans where people would leave after they leave the employer, members stay in this plan and continue to benefit from lower fees and good governance after they retire,” says Mazer, who adds that additional decumulation features can be added over time to help people manage the retirement phase.
“In a nutshell this was really the first time anyone had developed a retirement plan for low- and moderate-income earners, which we define basically as people without a pension who make less than $50,000 a year.”
As shown by the World Bank report, prepared by Common Wealth, and the Brookings Institution session, there is a growing interest in the Canadian model. Key to the success of that model in delivering the pension promise is a focus on results for members, says Mazer.
“We think the key thing is having different stakeholders working together in a way that serves the interests of members, and where everybody’s incentives are aligned around serving those interests.”
This happens in a variety of ways, he adds, including good governance, internal professional teams, and a regulatory environment that trusts the plans’ governance structures. That trust did not “happen overnight, it had to be built over time … through the performance and continued improvement of these plans.”
With a lot of retirement arrangements around the world, incentives are aligned around the interests of the shareholders or the companies that are delivering the retirement product, not around the interests of the members, says Mazer.
“And you get outcomes that are much, much worse for the members and much, much better for the shareholders … at the end of the day it’s those incentives that really make the difference in the Canadian model.”

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