Defined benefits ‘can still work’ [pensions]

NationalPost.com – financialpost.com/news
Dec. 15, 2011.   Jonathan Chevreau, Financial Post

Defined benefit pension plans are key to building retirement income adequacy in Canada, says John Crocker, the outgoing president and CEO of the Healthcare of Ontario Pension Plan (HOOPP).

Mr. Crocker said Wednesday efforts should be made to improve workplace pension plans rather than focusing on introducing cheaper alternatives.

“With good governance, professional investors, a sound investment strategy and mandatory contributions by members and employers, you can get there,” he said.

He said the average HOOPP pension starting in 2010 was $18,400 – meaning that after 25 years, a retiree will have received $460,000 in pension payments.”

He says the “next big thing” in social policy will be ensuring retirees have enough to live on.

Australia’s decline in DB pensions created widespread senior poverty.

“With pensions, the less you pay in, the less you get out – it’s a simple as that. In Australia, a nationwide switch away from defined benefit plans has led to widespread senior poverty. Half of Australian seniors live below the poverty line, and twothirds run out of pension income by age 75. Is that what we want here?”

The beauty of DB plans is you know in advance what you’ll get out of them, Mr. Crocker says. “Not many people in other types of plans realize that you need to save $500,000 to provide yourself with an annual pension of $25,000, but that’s the reality. We owe it to people to help them get there – we need to make workplace pensions better, not worse.”

The average Canadian has saved just $60,000 in his or her RRSP by retirement age. “It’s just not enough you can’t live on that for 20, 30 years,” he says.

HOOPP, a fully funded DB plan, shows that DB can work.

“It’s important for us to demonstrate that DB can still work,” said Mr. Crocker. “There is no more efficient, more effective way to deliver pensions to people than the DB model. Other types of plans simply download the responsibility for retirement onto the shoulders of the average working person. Very few among us know investing well enough to know when to buy, when to sell, or when to hold – it’s not fair to force busy people to try and figure this out by themselves.”

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