Speaker: Randy Bauslaugh
The global occupational retirement savings deficit is reportedly $70 trillion and growing. There are common factors contributing to this deficit in developed economies, including trends towards self-employment, conversion from defined benefit (DB) pension arrangements to defined contribution (DC) arrangements, and movements away from any pension coverage whatsoever. Another contributing factor may be a myopic reluctance to embrace any design that does not fall neatly into the traditional DB or DC classification.
In Canada, we have experienced a slow and steady decline in occupational pension schemes, from about 40% coverage in the 1980s to less than 30% today. There has also been a more rapid decline in DB coverage due to solvency funding and accounting requirements. This decline is causing notable rifts in labour market coverage, with public sector employees enjoying the stability and predictability of DB coverage and private sector workers, particularly non-unionized workers, being consigned to inferior and less cost efficient DC arrangements.
There are alternatives that already exist to provide more predictable benefits for employees, more cost efficient retirement income delivery and less volatility and contribution risk for employers. They are known as "target benefit plans"; but they also go by other names, such as "shared risk" plans, "defined ambition" schemes or "collective defined contribution" arrangements. These plans have existed in some jurisdictions in Canada for many decades. They are also in place in jurisdictions such as the Netherlands. They provide DB style benefits on a DC contribution platform. They hold out the prospect of a bold way forward and a cost efficient means to address the growing retirement savings deficit. What is needed is professional leadership and regulatory courage to make them a more common feature of the retirement savings landscape everywhere.
This panel discussion will examine target benefit design and experience in different jurisdictions.