Malcolm Hamilton’s Alternate Reality

Investment Industry Expert Actuary Malcolm Hamilton has been speaking out against pension reform and his views have sometimes been taken at face value in newspaper columns. We consulted with various pension experts to see what they thought of this January 12t 2010 article expressing Hamilton’s views. Below is an annotated copy of the article, our experts comments are in red.

“Retirement crisis overblown: Hamilton”

Steven Lamb / January 12, 2010

Despite dire warnings in the press that Canada’s pension plans are set to implode, one of the country’s most respected actuaries says the problem isn’t really that bad. In fact, Canadians are in an enviable position compared to most other countries.

“It’s a truth universally acknowledged that Canada has one of the best retirement systems in the world,” said Malcolm Hamilton, worldwide partner and consulting actuary in Mercer’s retirement, risk and finance business.

“If you look below the headlines, there is a lot that we can be proud of,” he said, speaking at the 19th annual Mercer Fearless Forecast symposium. “We have virtually no poverty among senior citizens in Canada — virtually none; a big change from 40 years ago when we started to develop the system that we now have.” 35% are receiving GIS (The Guaranteed Income Supplement)- a sign of poverty

For the broadly defined middle class — those earning between $25,000 and $125,000 per annum — Statistics Canada reports an income replacement ratio of 50%. Statistics Canada has not done a study of income replacement rates because they have not had sufficient data to conduct a longitudinal study (see Standing Committee on the Status of Women, 20/10/09, Statistics Canada hopes to do such a study in the future.)

“Is 50% replacement a sign of success or is it a sign of failure? We’re mostly taught that at 50% replacement, seniors should be disappointed, disgruntled and will be living miserably. I think that’s a wrong conclusion; I think 50% largely suffices.” 50% of the Average Industrial Wage [AIW] is about $20,000 – not enough. The Netherlands has 100% replacement ratio and 11 other countries fare much better than Canada at income replacement in retirement. Why should we be content with a 50% ratio?

He points out Canadian seniors are, on average, retiring voluntarily before age 65, indicating they’re content with anticipated income levels Interestingly, they continue to save money, despite halving their income. He needs to distinguish between voluntary and those affected by downsizing or business closures. There are no statistics to back this up.

“When they’re surveyed, 95% of them say they’re happy. That’s a higher percentage than is found among working Canadians,” he points out. “When they’re asked if their standard of living deteriorated or improved upon retirement, 80% say their standard of living is as good, if not better.”

Government programs provide a solid floor for retirement income, but benefits are hardly rich. Fortunately, individual Canadians have stepped up to the plate, tripling retirement savings in real terms over the past 20 years, to about $2 trillion. Incomes have tripled in the last 20 years, due to the impacts of CPP benefits and the number of women working who have contributed to the CPP. The proportion of income from the CPP increases following retirement as inflation takes its toll on other sources of income.