Most Canadians would rather have a better pension than a higher salary, according to a new survey showing a high level of anxiety about retirement savings.
As much as 80 per cent prefer pension improvements over better salary in a poll by the Healthcare of Ontario Pension Plan, the fourth largest in Canada according to assets under management with $79 billion.
Three quarters of respondents are most concerned about saving enough for retirement compared with current personal debt (55 per cent) or government debt (64 per cent);
81 per cent say that diminishing pension coverage will reduce their quality of life; and 83 per cent want government to change rules to allow for different pension and retirement saving types.
“It is clear that Canadians have a high level of anxiety around retirement security and that we, as a country, need to talk about how to address this growing concern,” Jim Keohane, president and CEO of HOOPP, said in a statement.
The concern over pensions and retirement savings has risen over the past few decades as more companies shift from defined benefit (DB) plans, which are funded mostly from corporate earnings, to defined contribution (DC) plans where a portion of the employee’s paycheque is set aside and matched by the company.
Rising costs and risks to administer DB investments have prodded companies to switch, but there are concerns that employees will have to invest more and more of their income to meet the same level of savings they would have earned under DB plans.
That has coincided now with a low investment return market where 30-year bonds are at about 1.5 per cent when they used to be 8-9 per cent 20 years ago, Robert Kavcic, senior economist at BMO Capital Markets in Toronto, said in an interview.
“Portfolio return expectations have come down a lot,” Kavcic said by phone. “From a pension perspective, the present value of those liabilities going forward on a corporate balance sheet are that much higher — probably one reason why they’ve phased out those DB plans,” Kavcic said.
“You have to be saving more every month to hit those same numbers at the end of your period or you have to stay in the labour force longer, and a lot of people are actually doing that, too,” the BMO economist said.
For its part, HOOPP, which covers 350,000 health sector workers such as nurses and medical technicians, said it had no plans to transition to DC from DB.
“HOOPP is considered one of the top Canada-Model pension plans in the world and we are confident this is the best model for our members, the healthcare workers of Ontario,” spokeswoman Judy Mann said by email.
HOOPP’s poll of 2,500 Canadians aged 18 or older conducted by Abacus Data in May this year also found 78 per cent believe pension plans are morally obligated to provide the same amount of security to today’s children as their grandparents enjoyed, and 76 per cent say governments can save money by supporting pensions that are more affordable.
“We need to develop more innovative options outside of conventional DB and DC plans,” Susan Nickerson, partner with Torys LLP’s pensions and employment practice, said in the HOOPP statement. “We need to supplement these offerings with financial literacy programs that help ensure employees of all ages recognize the value of workplace pensions.”
Discussion between companies and workers about their retirement plans are the best way to find new avenues that suit both sides, according to Hassan Yussuff, president of the Canadian Labour Congress.
“We recognize that there are challenges for employers,” Yussuff said in the statement. “Which is all the more reason we are eager to collaborate to develop solutions for investing in workers’ futures.”
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