Canada’s public sector pension organizations are global leaders. Over the past 30 years, they’ve distinguished themselves in the delivery of secure and sustainable defined benefit pensions but they’re facing new challenges. At issue is whether they can meet those challenges and repeat past successes for the next generation of Canadians.
A new report commissioned by the World Bank confirms that the pension organizations are global leaders. The report documented the evolution of the Canadian pension model and provided guidance to emerging economies seeking to design their own retirement systems.
The new challenges faced by Canada’s pension plans include:
- Low expected returns and interest rates;
- Increased competition for choice investment opportunities;
- Maturing plans with fewer active members and more retirees;
- Intergenerational equity issues; and
- Concerns about whether a model built for baby boomers can serve the needs, lifestyles and work structure of a large cohort of current and future workers: millennials.
Statistics Canada’s latest demographic estimates confirm that millennials (currently aged between 20 and 36) are as numerous as baby boomers (currently aged between 53 and 71), at 7.5 million. In 2016, the U.S. Census Bureau estimated millennials had surpassed boomers as the largest living generation in the United States.
There’s a perception that millennials won’t answer the phone but they will reply to a text. Therein lies the challenge. As millennials represent an increasingly larger part of the workforce, technology continues to shape their lives. They’re also a social generation that seeks to connect with family and friends to share experiences through social media.
Vancouver-based consultant Cheryl Cran projects millennials have brought about a monumental shift in employment patterns. She predicts that, by 2025, half of all millennials (a whopping 46 per cent of the workforce) will work remotely and only 10 per cent will stay in a job beyond three years. She expects the majority to work as entrepreneurs or on contract rather than in traditional jobs.
If accurate, Cran’s predictions could have a significant impact on retirement savings patterns.
A hallmark of millennials is their desire to do meaningful work with orderly work-life balance and flexible hours and without traditional hierarchies. Millennials thrive on shared leadership and are quite willing to change employers to experience more meaningful jobs. They avoid punch-the-clock workplaces and focus on task completion — regardless of time of day — rather than office hours. Imagine working at a company with ill-defined office hours, free-flowing energy drinks and floor hockey games at any time and where dogs are welcome.
Baby boomers, a generation characterized by disciplined 40-hour workweeks, have tended to remain with their employers for longer and have been less willing to change jobs just for more meaningful work. Those characteristics lend themselves nicely to the regular accrual of credited service under traditional defined benefit pension plans.
Millennials’ desire for a non-traditional work style will come at the expense of lengthier stints with the same employer. Yet millennials still desire the security offered by defined benefit pensions. The 40-hour workweek and year of credited service aren’t satisfactory metrics for millennials due to their flexible work arrangements, frequent job movement and entrepreneurial or contract status. Clearly, new work metrics are necessary if millennials are to enjoy the security of traditional public sector-type pension plans.
Can creativity, task completion or productivity become part of the new work metric for millennials? If employees have been productive, creative or completed tasks, why shouldn’t they receive credit of some sort for pension purposes regardless of employment status and the number of hours, months or years involved?
While there’s little doubt that Canada is home to world-class pension organizations, they face new challenges, not the least of which is the emergence of millennials as the dominant generation in the workforce. Millennials represent a new workplace reality — a radical shift in what work is, who does it and how — that requires an equally significant change in mindset about work, compensation and pensions.
For public sector pension plans to remain relevant, stakeholders need to upgrade their own operating systems to address the millennial challenge. It’s time to embrace pensions 2.0. What that entails isn’t yet clear; however, to safeguard pensions for the next generation, the system must permit millennials to accrue secure, sustainable defined benefit pensions while applying work metrics that recognize the new workplace reality.
For those who have some bright ideas for new work metrics, please share them. But don’t call. Send a text instead, as floor hockey is about to begin.