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© Copyright 2000 Rogers Media. The following article first appeared in the January 2000 edition of
BENEFITS CANADA magazine.
A prairie tale
Members of the Saskatchewan Public Employees Superannuation Plan are coming
into a windfall. Witness the future of DC.
By Dian Cohen
One of the last things i did in 1999 was go to Regina to talk to a group of Saskatchewan public servants
about money management. Why do they need money management services since they will get secure and generous
pensions when they retire? Because about half of Saskatchewan's public servants are in defined contribution
(DC) plans and many will receive between $600,000 and $1 million in capital within the next few years.
BENEFITS CANADA's list of the top 50 DC plans in the August 1999 issue shows that the Saskatchewan Public
Employees Superannuation Plan is the country's largest.
Saskatchewan began DC plans in the mid-1970s. Many people retiring now are at least 20-year veterans. Their
contributions and those of their employer have been in the hands of professional money managers for more
than two decades, earning the kinds of pensions most retirement-bound folks want. Now that the money is
being transferred to their hands (although locked in a registered retirement income fund), they need to
look after themselves.
Saskatchewan is an interesting case study of the long-term viability of DC plans. When the federal
government dreamed up registered retirement savings plans in the late 1950s, they were never conceived as
the main pension vehicle for any but a few self-employed entrepreneurs. At that time, the burden and risk
of securing pension income for employees was placed in the hands of employers with government promises of
partial income replacement in the form of the Canada Pension Plan and Old Age Security.
Now the trend toward DC plans is gathering steam, and for the people whose money is involved, there are no
guarantees. Their pension income depends on the accumulated contributions and the success of their
investments. They bear the risk if it doesn't work out.
This is a scary proposition to many people who are used to thinking that life should come with guarantees.
They say the success DC plans have had in the last 25 years has been a fluke of good markets, and that in
the long run, the old way is best. I disagree. Here's why.
First, markets weren't so hot in the '70s and interest rates were lower than they are today. Investors with
well-designed plans and professional money managers made money. If they didn't, the money managers were
fired, investors took what was left and started over with someone else.
The '80s saw not just the stock market crashes of '87 and '89, but also 20% interest rates that doubled
your money every three and a half years and brought you to tears if you happened to choose real estate as
your investment. The point is that markets always go up and down, and there's almost never a time when a
reasonably informed investor can't make money grow.
Professional money managers manage Saskatchewan's DC plans. Plan members don't get a menu from which to
choose. In other DC plans they do. Either way, plan members need to start assuming some of the
responsibility for their money, because clearly they are assuming the risk.
For the past 50 years or more, the very essence of the welfare state has removed the risks of ordinary
life--medical care, saving for a home, education, unemployment, retirement--from people. Now globalization
and the Internet are making it impossible for governments to spend money on programs that taxpayers don't
want to pay for. That's why social programs are falling apart and governments are breaking promises. It's
not that they want to, it's that they can't stop the trend toward international equality.
Global capital markets are broader and deeper than they have ever been; they are ready and able to take up
the challenge of facilitating the creation of wealth. What would help is better-educated investors, and
better (not just more) rule-making by governments.
Dian Cohen is an economics consultant with a special interest in pension issues.
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