“Indexing has its place, but an open-ended commitment at taxpayers’ expense is totally out of the question, particularly when the private sector cannot afford to include such open-ended liabilities as a business expense.”
That was the conclusion of a Benefits Canada story entitled “The new elite: those with indexed pensions.”
The story appeared in Benefits Canada’s first issue in early 1977. The piece, an excerpt from a speech by Keith Cooper of Towers Perrin Forster & Crosby, took issue with the federal government’s provision of full pension benefits, indexed to inflation, to anyone with at least 30 years of service at age 55. Could the same piece run today? Some of the elements would be different, but similar provisions remain in place for many federal public servants. For those who joined the plan before the end of 2012, they can still retire at age 55 with an unreduced, indexed pension benefit.
As you’ll see in this month’s issue of Benefits Canada, which celebrates the magazine’s 40th anniversary, many of the issues currently up for debate have been on the table for a long time. “Why retirement at 65 is crazy,” shouted a headline in 1977. The issue in that case dealt with the merits of ending mandatory retirement at 65, but Canada is still debating whether it’s wise to keep eligibility for retirement programs like old-age security at that age.
While it’s tempting to conclude that many aspects of the pension and benefits industry have remained stagnant, there are lots of examples of change and evolution. Research conducted by Benefits Canada as part of its 40th anniversary celebrations shows many plan sponsors have been making changes. For example, while similar research conducted in 2012 found only eight per cent of survey participants had made changes to their defined contribution pension plans, that number increased to 19 per cent this year. Not surprisingly, the survey found a significant shift away from defined benefit pension plans even though, as this month’s top 100 pension funds report shows, that side of the industry remains strong. Predictions, however, suggest the defined contribution side will grow quickly to represent a much bigger proportion of Canada’s pension industry in the coming years.
It’s the public sector, of course, that continues to breathe significant life into the defined benefit side of things. But what Cooper said then could arguably apply now. With demographic trends showing there will be fewer and fewer working-age Canadians per retiree, it’s hard to justify maintaining plan provisions that allow for full pension benefits at age 55 with indexation, particularly when such generosity is rarely available to the rest of the workforce.
And as Joe Nunes points out in this month’s issue, the benefits side of the industry would do well to consider embracing defined contribution principles more fully. With sustainability a key concern and flexibility a major trend, it seems inevitable that plan sponsors will focus more on applying defined contribution principles to their benefits plans as well.
What has been happening is in many ways a reflection of the typical Canadian approach of slow, incremental change. It may not be happening fast enough for some, but the evolution will only continue to gather steam as the public sector and the benefits side of the industry feel increasing pressure to adapt and change.
Glenn Kauth is the editor of Benefits Canada.
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