This is Part 1 of a two-part series. Part two was published on August 28.

I’ve been involved in healthcare for many years now, from my early days as an registered practical nurse to my current work as chair of the Healthcare of Ontario Pension Plan (HOOPP).

HOOPP provides pension benefits to more than 274,000 active and retired healthcare workers across Ontario and is always interested in people’s attitudes toward retirement. With that in mind, HOOPP carried out a two-part white paper with The Gandalf Group called The Emerging Retirement Crisis.

Part 1 found that 64% of Ontarians surveyed are worried they won’t have enough income to live on in retirement.

Eighty-two percent of those who have DB plans are confident they’ll have enough to retire on, but only 57% of those in DC plans are as confident. But even those with pension plans at all are in the minority in this country—approximately 60% of Canadians have no workplace coverage whatsoever.

HOOPP proves that the DB model can work, and work well. As of the end of 2012, HOOPP was fully funded, meaning it has more than enough assets to cover all benefits owed to its membership.

Why does DB work? There are several key factors. First, contributions are mandatory, made each payday and matched by the employer.

Second, over time, the contributions are invested by HOOPP—and invested very well. A recent Boston Consulting Group survey showed that HOOPP and the other nine large public sector pension funds in Canada managed more than $714 billion in retirement assets at the end of 2011—roughly 35% of the total retirement savings in the country.

Third, professional, low-fee investing by HOOPP means that about 80 cents of every pension dollar payout comes from investment returns. And HOOPP paid out $1.4 billion in pensions last year.

We can’t expect healthcare workers to be experts in money management and investment. They—frankly, all workers—need a little hand with things they’re not familiar with.

Ontarians are fearful about growing older and fearful they may not have enough money to see them through till the end of their life. Let’s listen to what they’re saying and work to ensure that all Canadians can retire as they worked—with independence and dignity.

Helen Fetterly is chair of the Healthcare of Ontario Pension Plan. The views expressed are those of the authors and not necessarily those of Benefits Canada.

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Neil Craig:

Well it is no doubt a great thing to be in a DB plan where the promise is ultimately back stopped by the taxpayer. Contribution levels to the HOOPP plan in total are significant and oh, the taxpayer is paying the salaries from which those employee contributions come, so in that environment I think DB is absolutely the choice for members and employers alike. Unfortunately private sector employers do not have the luxury of a backstop nor a culture of fairly high income levels which would allow employees to sustain contribution levels well in excess of 10% duly matched by their employer.

Congratulations to HOOPP on their investment success but to suggest that the model that works well in some parts of the public sector is the be all and end all is comparing apples and oranges. The real problem continues to lie in a lack of real action in the arena of financial literacy. Let’s get moving on that, let’s get it into the schools on a mandatory curriculum, otherwise we will just continue the current cycle of lack of participation and low retirement savings levels.

Thursday, August 22 at 2:37 pm | Reply

Joe Nunes:

Neil makes so many good points I will not repeat them. I am a defined benefit plan actuary and have seen some pretty tough times for single-employer plan sponsors over the past 15 years. I do agree that in theory the DB plan is a much better mechanism than DC for ensuring adequate retirement income – but the government has systematically pushed private employers out of DB with insane regulations and funding rules.

I don’t disagree with Neil’s call for better financial literacy but after many years working with DC plan sponsors I am not expecting that to happen any time soon.

Expanding the CPP and PRPPs are both bad ideas intended to fix the problem created by the crater left by employers that have abandoned DB and the commitment to employees to get them through to an affordable retirement.

The real answer is already here but no one wants to admit it. The vast majority of Canadians will need to work much longer than the prior generation. People joke that it is no longer Freedom 55 but now Freedom 75. I am willing to bet that for many private sector workers currently under the age of 55, age 70 retirement isn’t too far fetched. If you don’t want that to be you, stop worrying about financial literacy and start saving about twice as much as you are currently saving.

Sorry to be the actuary that is once again bringing the bad news.

Wednesday, October 23 at 7:50 pm | Reply

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