In short, the key advantages of a true defined benefit plan would be coupled with the key advantages of knowing in advance what contributions are required. Historically, private insurers used to provide defined pensions in this manner in the 1950s and 1960s but ceased to do so because it required them to maintain regulatory capital on account of the fact that insurers were on the hook for pension promises. By transferring the underwriting risk to a large enough entity (the public funds), Canadians can have the certainty of a defined benefit promise without putting pressure on insurance companies. The key to this approach is the setting of actuarial assumptions very conservatively, thereby avoiding surprises.

B.C. and Quebec have adopted a similar model for car insurance in their provinces. This model works and Canadians in those provinces generally pay half the premiums Ontarians pay. Ironically, allowing a public alternative will introduce a healthy dose of competition for our pension dollars, something which is surely bound to benefit everyone by keeping private providers honest.

Keywords: PRPP, public, private, finances, pension reform