The Economic Benefits of DB Plans

big loadCanadians who receive DB pensions are much less likely than other retirees to collect the federal government’s Guaranteed Income Supplement (GIS), according to a newly released study.

Conducted by the Boston Consulting Group, the study indicates that an estimated 10% to 15% of DB recipients collect the GIS, compared with 45% to 50% of other Canadian retirees. DB pensions have been found to reduce the annual payout of GIS, a supplementary government benefit provided to low-income seniors, by approximately $2 billion to $3 billion a year.

The report also finds that DB beneficiaries contribute $14 billion to $16 billion annually to government coffers across Canada through income, sales and property taxes. Additionally, these retirees spend $56 billion to $63 billion annually on durable and consumable goods.

DB pension benefits have the greatest impact on small towns, with DB pensions forming on average 9% of the total earnings in those communities versus 6% for large metropolitan areas, according to the survey.

“DB retirees can count on greater certainty in retirement with a stable monthly income based on the number of years they contributed to their plan, so they are more comfortable in spending what they receive, helping fuel the Canadian economy,” explains Bill Hatanaka, president and CEO of OPSEU Pension Trust (OPTrust).

This situation needs to be replicated across the country, says Michael Nobrega, president and CEO of the Ontario Municipal Employees Retirement System (OMERS). “We must not allow ‘pension envy’ to define the debate on the reform of our pension system,” Nobrega says. “Let’s work together to fix what’s really broken—the lack of adequate retirement savings among the majority of Canadians.”

The study analyzed data from 2011 and 2012. It was commissioned by a group of Canada’s leading DB pension plans: Healthcare of Ontario Pension Plan, OMERS, OPTrust and the Ontario Teachers’ Pension Plan.