Monday, November 19, 2012

Pooled Pensions Remain a Dream?

Barbara Shecter of the National Post reports, Pooled pensions remain a dream:
In the best-case scenario, the federal government’s plan to ensure all Canadians save for comfortable retirements is in limbo.

In more dire circumstances, which some envision, the proposed low-cost Pooled Registered Pension Plan that would cull savings from workers who don’t have a pension plan through their employer is dead.

Ed Waitzer, director of The Hennick Centre for Business and Law in Toronto, is decidedly a believer in the more dire outcome for PRPPs.

“I think they’re likely DOA,” he said recently, nearly a year after co-writing a report for the C.D. Howe Institute that expressed concern about the success of closing the retirement savings gap being largely left in the hands of the provinces.

Developments since then have convinced him that the federal-provincial co-operation model put in place “is too fragmented to be able to get an initiative like this done.”

So far, none of the provinces have passed legislation requiring employers to offer the federally mandated pooled pensions to their employees.

The view in late 2010 was very different. That December, after months of discussions, Canada’s federal and provincial finance ministers put out a statement in which they agreed on the idea of pooled pensions administered by regulated financial institutions such as banks and insurance companies.
You can read the entire article here. It ends by stating the following:
“The future of the PRPP project from here will very much depend on how seriously Ontario and Quebec take it,” he says. “That is hard to tell at this point, with the new Quebec government still settling in and the Ontario Liberal leadership convention still two months off.”

David Denison, former chief executive of the Canada Pension Plan Investment Board, says gaps left in the PRPP plan at the federal level “don’t make it especially compelling for people to get behind [it] and push ahead.”

The plans aren’t mandatory for employers, and there is no mechanism to create a gradual payout stream that would help Canadian manage their money through a retirement that could last decades, he says. Without that, the PRPP, even if it becomes a reality, is likely to fall short of the policy objective of helping Canadians generate sufficient retirement incomes.

“It’s not really going to make a significant difference,” he says.
Of course it's not going to make a difference. I told my readers a year ago that the federal government made a huge mistake pandering to banks and insurance companies, banking on PRPPs.

But just because PRPPs are dead on arrival, doesn't mean we should dismiss the idea of pooling pensions altogether. On Saturday, I wrote about how Ontario is set to pool pension assets of public sector workers. This is what I call "smart pooling" as opposed to "dumb pooling" of PRPPs.

Moreover, as more and more Canadian corporate pensions keep flying off course, it's time we get serious about addressing the looming retirement crisis. All Canadians need a reality check on pensions. We need to educate people on what is in their and the country's best long-term interests when it comes to a sound retirement system.

I'm an ardent proponent of bolstering defined-benefit (DB) plans for all Canadians. Some very smart people have made the case for boosting DB plans but it seems like Ottawa still doesn't get it or refuses to admit that no bank, no insurance company and definitely no mutual fund can compete with our large, well governed DB plans.

Some pension experts have argued that we need hybrid plans, but I'm not for that proposal either. DB, DB, DB, all the way! Make sure they are properly funded, large enough to benefit from economies of scale and well governed so they attract and retain the right people to manage pension assets in public and private markets.

If you're still not convinced, read David Denison's last speech before he retired on "Maple Revolutionaries" to understand why Canada has what it takes to significantly improve our retirement system. The only thing that is lacking is political will (of course, our politicians enjoy the security of gold plated pensions).

Below, Bloomberg's Peter Cook reports on the progress made in Friday's meeting with President Barack Obama and Congressional leaders and how the negotiations may play out in avoiding the fiscal cliff. He speaks on Bloomberg Television's "In The Loop."