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Jim Keohane photo - official oneHOOPP President & CEO Jim Keohane said that the real problem with pensions is that there is a very large number of people who are not covered. He said that having a large group like this without pensions may “cost us dearly” in the future, noting that Old Age Security and the GIS are “a very large expense for the federal government.”

 


 

(Staff) – A retirement income crisis awaits us if action is not taken on expanding workplace pension coverage in Ontario and across the country.
That was one of the key messages delivered at “We’re All Invested,” an information session held March 17 at the MaRS Centre in Toronto. The event was sponsored by the Healthcare of Ontario Pension Plan (HOOPP), along with the settlor organizations on its board – the Ontario Hospital Association, the Ontario Nurses’ Association, the Canadian Union of Public Employees, the Ontario Public Service Employees Union, and the Service Employees International Union.
Michael Block of the Boston Consulting Group presented research on the investment expertise of the nation’s public sector pension funds, and as well, the significant impact defined benefit (DB) pension income has on the economy. Canada’s Top 10 pension funds, a group that includes HOOPP, managed more than $714 billion in retirement assets as of the end of 2011, and their track record of success “has built a great reputation for Canadian pension funds around the world.”
The income that DB pensioners receive, Block noted, has a significant impact on the economy.
In smaller towns, BCG research found that significant total income comes from DB pensions. In Cobourg, for example, 15 per cent of income comes via DB pensions. Across Ontario, DB pensioners spend $27 billion annually on goods and services, and pay $3 billion in income taxes. $3 billion from their spending goes to provincial and federal sales tax and property tax, Block said. “That money, for the most part, all goes back into the economy, and there is a multiplier effect as well,” he said.
Block also noted that DB pensioners are far less reliant on taxpayer-funded income support programs, such as the Guaranteed Income Supplement (GIS). Only about 10-15 per cent of DB pensioners receive the GIS, compared to 45 to 50 per cent of non-DB pensioners, he noted. He called DB pensions “an important pillar of the retirement system,” adding that the mandatory savings enable savings and investments that might not otherwise have happened.
Next to speak was David Herle of the Gandalf Group. His company did some public opinion research on the topic of retirement, and found that two-thirds of Ontarians are concerned they won’t have enough income in retirement. His research found that those with DB plans expect they will have about 95 per cent of the income they need in retirement, while those without plans fear they will be about 20 per cent short.
“People with DB plans don’t know how good they have it – and those without them don’t know how bad they have it,” he said.
Other findings from Gandalf’s research included:

  • 86 per cent of Ontarians believe there is a retirement income crisis
  • 73 per cent are concerned that it is not mandatory for employers to offer workplace pensions
  • 65 per cent believe that without good workplace pensions, the economy will suffer

The research found that there was not envy amongst the public about the pensions that public service workers have, but instead, a belief by 60 per cent that private sector pensions should mirror the public sector system.
“There is a retirement income crisis right now,” Herle said, adding that “a shocking number of people have put nothing away for retirement.” He said that employers and government “both have a role to play” in delivering retirement security.
The final speaker was HOOPP President & CEO Jim Keohane.
He said that the real problem with pensions is that there is a very large number of people who are not covered. He said that having a large group like this without pensions may “cost us dearly” in the future, noting that Old Age Security and the GIS are “a very large expense for the federal government.”
He said the types of pensions delivered by HOOPP are “hardly gold plated,” with the average amount currently around $23,000 a year. But that reliable income allows seniors to be independent, and less reliant on government income support programs. “They (DB pensioners) aren’t the problem,” he explained.
Moving away from DB plans in the private sector was probably more about the tough accounting rules faced by private businesses than the cost of pensions, Keohane noted. There is likely no cost savings by switching from DB to defined contribution, he noted, and the burden of risk “is shifted to the employee. The vast majority of people would be better off in a more defined vehicle.”
DB plans feature risk sharing through pooling, professional investing, low fees, and cost effectiveness. About 80 cents of every dollar that HOOPP pays in pensions comes from investment returns. Members and employers pay the rest, so the taxpayer is contributing about 10 cents on the dollar.
He concluded by saying DB plans are a “key part of the solution” for the retirement income crisis, adding that a pension plan “structured on the HOOPP model” would be a good model for a pension plan designed to supplement the Canada Pension Plan.
HOOPP has posted a White Paper on its website that summarizes the day’s findings. The document can be found here. As well, HOOPP has added a DB section to its website that offers more information on this issue. You can view it here
HOOPP has started tweeting about DB, follow @HOOPPDB to see what they have to say.
Video from the March 17 event will be added to the hoopp.com site soon.

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