Despite World-Class Public Pension System, Worries Abound for Canada Retirement

(March 5, 2012)—Despite housing some of the world’s most sophisticated asset owners in its public pension sphere—the Canadian Pension Plan and Ontario Teachers’ Pension Plan among them—Canadian plan sponsors are concerned about immediate and long-term threats to retirement assets.

According to a study released this month by consulting firm Towers Watson, 65% of Canadian defined benefit (DB) plan sponsors “believe that Canada is experiencing a pension crisis that will be long-lasting and likely to worsen in the next 12 months.” This number is up from 56% in the 2011 iteration of the Pension Risk Survey, which asked 115 plan sponsor executives for their opinions on a variety of subjects.

Furthermore, the study says that 54% of DB sponsors are “currently planning or considering investment strategy changes, typically to de-risk their portfolios,” according to a release from the consulting firm. “In contrast to prior years when plan sponsors were more focused on seeking higher returns, 53% of 2012 respondents (compared to only 36% in last year’s survey) appear willing to accept lower returns in favour of reduced risk,” the release adds.

“Until a few years ago, plan sponsors remained caught in the mindset that de-risking meant giving up more return than they felt was worthwhile,” says David Service, Director of Towers Watson Investment Services, in the release. “Many plan sponsors did not take advantage of the de-risking opportunity that existed in 2006 and 2007 when their DB plans were close to fully funded. After another volatile year of market performance and declining funded status, sponsors now seem more inclined to focus on de-risking their DB plan—even if at the price of lower returns.”

The release does not make clear whether the DB plan sponsors polled included the mega-plans that many think of when they consider Canadian retirement assets.

Other revelations from the survey include:

·      With pending pension legislation, “a majority of respondents cit[ed] permanent extension of amortization periods (59%) and extensions to temporary funding relief (57%) as being within their top three priorities,” according to Towers Watson.

·      Only 2% of current private sector DB plan sponsors expect to alter their plan structure towards a defined contribution plan in the next year.