Despite the criticism of our pension system, the second annual Melbourne Mercer Global Pension Index has ranked Canada’s as No. 5, ahead of the U.S., the U.K. and France.
“What this says is that Canada’s pension system is continuing to rank among the better systems of the world,” says Scott Clausen, a partner with Mercer.
Canada currently had a B ranking, the same ranking as the Netherlands, the keeper of the No. 1 spot for the past two years. “A B ranking means that we do have a good, sound system, but there are areas for improvement,” Clausen explains. “But I do think it continues to show that Canada’s retirement system is strong.”
Steps for improvement
Clausen points out several areas—most notably increased pension coverage for employees—in the Canadian system that could be addressed to help the country’s system move up in the ranking.
“We are faced with a situation where about 75% of private sector employees are not covered by an occupational or employer-provided pension plan,” he says. “That does leave a large gap in the sustainability of the system because it could put more pressure on government down the road.”
Clausen adds that public policy-makers should continue their focus on increasing pension plan coverage for middle-income employees in the private sector, given that the current Canada Pension Plan maximum pensionable earnings is $47,200.
The report also recommended that Canada’s system could be improved by addressing the following:
• ensuring that voluntary retirement savings are preserved for retirement purposes;
• introducing a mechanism to increase the government pension age of 65 as life expectancy continues to increase; and
• increasing the level of household savings.
Although looking to countries such as Switzerland, Sweden and Australia, which ranked No. 2, No. 3 and No. 4, respectively, may give some insight into how we can improve our own system, those, too, are not perfect.
“One of the things we’ve found with the global financial crisis over the past few years is that there is no perfect system that can handle decreasing interest rates and large decreases in market values,” Clausen says. “Every system, whether it’s defined benefit or defined contribution, can only handle so much. What we need to do is when we are looking at the forms that are being discussed is look at how we can take the current system and make it even stronger.”
The second Melbourne Mercer Global Pension Index, produced by Mercer for the Australian Centre for Financial Services, compares pension systems from around the world and ranks them based on adequacy, sustainability and integrity. The index was expanded to cover 14 countries, with the addition of Brazil, France and Switzerland.