The recent financial crisis, record-low interest rates, the aging population, and the plight of bankrupt or under-funded pension plans have made the health of Canada’s pension/retirement system one of the critical issues of our time. Are Canadians saving enough for their retirement? Are they investing those savings wisely? How does Canada compare to other countries in providing for our senior citizens?
FAIR Canada supports the call by the Canadian Association of Retired Persons (CARP) for a national pension summit to gather all interested parties: representatives of retail investors, pensioners and seniors groups, labour unions, financial service providers, pension fund managers, consultants, academics and others. The summit would be tasked with reaching agreement on the facts and coming up with specific actions and suggestions to improve Canada’s retirement funding. As our population ages while pressures on public finances increase, it is crucial to devise effective policies to provide our seniors with economic security in a cost-efficient manner.
The Pension Summit and the Mintz Report
On December 18, 2009, the federal, provincial and territorial Ministers of Finance met in Whitehorse, Yukon. The Ministers concluded their Whitehorse meeting with plans for “vigorous public consultations” leading to concrete decisions by the Ministers’ next meeting in May, 2010. Read more in the Whitehorse Star’s summary of the meeting.
The Ministers had appointed a Research Working Group on Retirement Income Adequacy in May, 2009, under the leadership of the University of Calgary’s Jack Mintz. The Working Group commissioned several studies and reported in time for the Whitehorse meeting.
The 30-page summary of the Mintz report concluded that the Canadian retirement system is in relatively good shape, and that Canadian seniors fare better than most of their counterparts in other developed countries. However, a significant minority of Canadians (20% to 25%) do not have sufficient savings to provide for a comfortable retirement. The Mintz report concludes with a call for further study of several subjects including consumption rates for retirees and an analysis of sub-groups that are not saving enough.
One little-noticed conclusion of the Mintz report focused on the importance of maximizing after-tax, after-cost investment returns, and the high cost Canadians are paying for asset management and advice. “Once taking into account active management costs, passive managed assets would provide superior returns. Individual investors do not seem to be advised sufficiently to invest in indexed and exchange-traded funds to improve fund performance.” This focus on costs and on advisor duties is a significant theme in FAIR Canada’s work.
Other Views of Canada’s Retirement System
Some of the Mintz report’s methodologies are controversial, particularly the inclusion of seniors’ principal residence as a source of income. See an interesting critique by actuary and advisor to the Common Front for Retirement Security Jim Murta here.
Other groups believe that Canada’s pension system is broken and in urgent need of repair, and are calling for an expansion or supplement to the government’s existing national pension plan. See The Canadian Association of Retired Persons’ (CARP) 9-page study “Time for a Universal Pension Plan”. A 2009 report commissioned by the Ontario Government warned that a significant minority of Canadians face much lower standards of living in retirement – particularly immigrants, seniors with dependents and those relying on the Guaranteed Income Supplement.
