September 26, 2019 – Pension policymakers need to play catch-up in Canada’s changing pension landscape, says a new report from the C.D. Howe Institute.
In “The Quest for Sustainability in Contingent Pension Plans,” authors Barry Gros and Barbara Sanders explore the policy implications of Canada’s shift away from traditional defined-benefit pension plans towards contingent pension plans in which benefits for members depend on the financial position of the plan.
The report notes that at the same time contingent pension plans are becoming more prevalent, the term “sustainability” has entered the pension lexicon. Through interviews, Gros and Sanders sought out what sustainability means in the new context for pensions, how it can be achieved, and the challenges it poses for regulators.
The authors conducted interviews with 30 pension experts across Canada involved in the management of contingent pension plans. Experts included high-level plan employees, pension consultants, lawyers and other senior members of the Canadian actuarial community. “The real power of what we did was tapping into the collective wisdom of some of the best pension minds in Canada. Everyone has bits and pieces of knowledge, but no one has all of it,” says Gros.
When asked what needs to be in place for a plan to be sustainable, respondents identified factors that extended beyond financial measures, including the design and nature of the plan, governance and communication with stakeholders.
As contingent pension plans play an increasingly important role in delivering retirement benefits, they need to be uniquely managed, communicated and regulated. “We need pension standards that will assist in the goal of achieving sustainable contingent pension plans, not impede it,” says Sanders. Designing a meaningful and effective regulatory environment starts with acknowledging the multitude of existing and valid sustainability objectives and the variety of associated management practices.
The report concludes long-term sustainability would be best served by a move away from prescriptive regulation of financial management decisions. At the same time, Gros and Sanders recommend strengthening requirements in the areas of governance and member communication. “Unless policymakers are prepared to design and legislate an entire risk management framework, prescriptive measures will continue to get in the way of sensible decision-making in contingent pension plans. So let’s move away from limiting management options and focus instead on creating the right process and the right environment for solid decision-making that is tailored to each plan’s unique circumstances,” says Sanders.
For more information contact: Barry Gros, retired actuary and current Chair, Pension Board, University of British Columbia Staff Pension Plan; Barbara Sanders, associate professor of actuarial science at Simon Fraser University; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, phone 416-865-1904 ext. 0247, email: nschlomer@cdhowe.org.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.