What does Canada do better than any other country?

Play hockey? Let’s not go there.

Run an effective, efficient and sustainable retirement income system for the general population?

It doesn’t do that as much as we’d like. Canada rates fourth in the best-known international comparison in this area, the Melbourne Mercer Global Pension Index. There are reasons why we’re currently discussing potential reforms for our retirement income system.

Read: Canada’s retirement income system ranks high

Responsibly and effectively manage sustainable pension arrangements for our public sector workers? Maybe that’s it. I suggest that claim does hold up to scrutiny.

Canada’s largest public sector pension plans have successfully pioneered new approaches to institutional investing and have subsequently earned reputations as Maple Revolutionaries.

In addition, many Canadian public sector pension plans have been innovators in governance, sharing risk and plan design. The innovations have largely broken down the dichotomy between defined benefit and defined contribution programs in the public sector. Most Canadian public sector workers today are members of an occupational pension plan that’s neither a conventional employer-sponsored defined benefit pension plan nor a typical defined contribution arrangement.

Read: Sounding Board: How OPTrust builds long-term sustainability

What people are less aware of is the fact that Canada rates best in the world at responsibly funding its public sector pension liabilities.

Moody’s Investors Service is a good source for internationally comparable metrics on public sector pension plan finances. As an agency that rates the credit worthiness of sovereign governments, Moody’s has a keen interest in the financial sustainability of government-sponsored pension plans. Its preferred metric for making international comparisons is the total of all public sector pension plan unfunded liabilities in a country divided by its gross domestic product.

In April 2016, Moody’s released a report that looked at government employee pension liabilities compared to social insurance programs in the United States. The report also included, for context, comparator statistics for the other developed countries that have high credit ratings in its data set.

Moody’s cited Canada as having the lowest unfunded liability burden at 12 per cent of GDP in 2014. For comparison, Australia came in at 21 per cent, the United States at 40 per cent and Britain at 66 per cent. Nobody beats Canada at keeping public sector pension liabilities under control.

Read: CPPIB shares winning conditions for long-term investing

Canada has a very heterogeneous set of public sector pension arrangements. Plans vary widely across the country in terms of design, governance and financial status. There’s no national regulator overseeing these arrangements and no unitary government sponsoring all of the plans.

But overall, the system seems to work. Perhaps it’s a good example of federalism in action. Individual plans, provinces and municipalities have scope for innovation. Plans monitor each other and learn from the collective experience. While diversity remains, the arrangements overall gradually improve.

And when a Canadian public sector pension plan benchmarks itself against its Canadian peers, it’s measuring against the best peer group in the world.

Bruce Kennedy is the executive director of the B.C. Public Service Pension Plan.

British-Columbia-flagB.C. Public Service Pension Plan at a glance

  • 116,000 – Number of members
  • 91 – Number of employers
  • $27 billion – Plan assets at Dec. 31, 2015
  • Governance – Jointly sponsored and trusteed by the provincial government and the BC Government and Service Employees’ Union
  • Cost-sharing – 54% employers; 46% members

Risk sharing for non-indexed pension: A defined benefit promise with 50/50 sharing of contribution rate increases or decreases

Risk sharing for inflation adjustments: Set contribution rates with plan members bearing 100% of investment and inflation risks

  • $21,800 – Annual average lifetime pension for new pensions (fiscal year 2014-15)
  • 101% – Funded ratio on a going-concern basis at March 31, 2014
  • 105% – Funded ratio on an accrued basis at March 31, 2014
  • 2.75% – Actuarial net discount rate (assumed investment return less assumed salary growth)
  • Actuarial method – Entry age normal cost

Asset mix, at Dec. 31, 2015:

  • 51% – Public equities
  • 19% – Bonds and short-term fixed income
  • 30% – Other

Annualized rates of return, to Dec 31, 2015:

  • 20 years – 7.9%
  • 10 years – 7.3%
  • Five years – 9.6%

Copyright © 2017 Transcontinental Media G.P. Originally published on benefitscanada.com
See all comments Recent Comments

Larry Barbour:

I cannot find an explanation.

The recently announced $750M dollar refund has me confused. The announcement was made in the media; but no explanation.
Does this mean that seniors like myself will be getting money in the future?
Thank you.

Saturday, June 18 at 3:35 pm | Reply

R. Thomas Davy:

A. Where is this money coming from?
B. When may we expect to see the funds?
C. Is the $750 Million dollars in Canadian Funds?
D. Surely I, alone, would not receive the entire amount, Eh?
E. Do we, as Citizens of Canada, have any say just how these funds will be used?

Tuesday, June 21 at 9:47 pm | Reply

F. Nietzel:

An excellent article, but lacking is any mention of Benefits, an important financial consideration in retirement. For example, BCPSPP has eliminated Dental, MSP fees and spousal Extended Health. While still providing the retiree Extended Health and Inflation Allowance, these benefits are not guaranteed and could also be eliminated.

Sunday, June 19 at 11:12 pm | Reply

Jerry Cyrus:

Surely, with a defined pension, pensioners (including myself) should cover our own benefits when we retire. The fact that we are guaranteed pension money is a blessing unto itself. I think the important thing about pensions is to provide ALL pensioners (not just the ones currently retired or the ones who will be retiring in the next 10 years) the agreed upon pension. Expecting the BCPSPP to pay for future benefits is unreasonable due to unaffordability.

Wednesday, July 13 at 1:14 pm | Reply

Jasmine:

How will the new policies of Government pension plans will affect me ? I no longer contribute to pension plan I am retired and I do not intend to go back to work.

Wednesday, June 22 at 1:57 am | Reply

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