“We obsess about any reduction in standard of living when people retire,” he said. “The major reduction in standard of living in Canada doesn’t happen when people retire; it happens much earlier in life when they have children and buy a home.” This is not supported by the evidence.
Mercer’s own Global Pension Index ranks Canada fourth, behind the Netherlands, Australia and Sweden — countries Hamilton describes as the poster children for defined benefit, defined contribution and state pension plans. For government plans and only for someone earning at the AIW level for their entire career.
“Then we had Canada, the poster child for the mixed-model, chaotic pension system,” he said. “Given the difficulty in understanding Canada’s retirement system, it said a lot that we managed to come in the top tier.”
While there is much to be proud of, there is always room for improvement for the retirement system, and Hamilton said media pressure will force politicians to enact fresh reforms.
“Before we start any reform in this country, we need to do so with a clear view of what can be achieved, and what can’t be achieved,” Hamilton said.
What Canadians won’t see, he said, is a system that offers large, affordable, secure pensions at stable prices. Unlike other countries which do.
“What can be achieved is a system that tries to do that, as best it can, through diversified strategies and takes burdens that arise and distributes those equitably.”
Hamilton points out the current retirement system poses problems for a very small number of Canadians — those in the private sector, middle aged, and with above-average incomes. Reforms to Canada’s pension system need to focus on these affected groups, as broad-based reforms are neither needed nor affordable.
The private sector, middle aged and those with above average incomes (greater than $42,000) – this is not a very small number, it is likely about 75% of the population. He also seems to restrict Canada’s ‘issue’ to mid- and upper income people in the private sector which makes it sound like it is a small fraction of the workforce. That group adds up to millions of Canadians. That alone should be reason to reform our pension system! And let’s not forget that this lack of coverage end up with 35% of Canadian seniors, i.e. the GIS recipients, living in poverty. Not to disregard all other seniors who barely fail to qualify for GIS benefits and also live in poverty.
Financial innovation has provided the retirement system with all the tools it needs, he said. What Canadians now are new institutions, which can provide workers with affordable advice on which of these tools is right for them. Fine, but who should run these new institutions?
At the same time, there needs to be a complementary focus on debt management. “We need to treat seniors like adults,” said Hamilton. “During my life we’ve tended to pamper seniors. When I was young, we indexed all the government programs because seniors shouldn’t be on fixed income. Thirty years later, I’m reading that we need to give seniors money because they’re all on fixed income. None of them are on fixed income. They’re happy and they’re capable of bearing risk, dealing with disappointment, and are frugal as the day is long. If we’re going to be an older population, we need the older part of that population to be pulling its weight.” The only income that is indexed comes from government plans. The comments are otherwise ageist and insulting.
