Otto von Bismarck, first chancellor of Germany, introduced the world’s first state pension plan in the 1880s. Citizens weren’t eligible to collect benefits until age 70, despite the fact the average life expectancy at the time was around 61.
Bob Rae, Liberal MP for Toronto Centre, told this story to delegates at the Conference Board of Canada’s Summit on the Future of Pensions on Wednesday, to underscore the point that policies around retirement income and security need to take shifting demographics into account.
“We have to understand better the nature of some of these questions and how, then, we have to create public policies that are going to make a difference,” he said.
Rae said the retirement landscape is vastly different today than it was 50 years ago when Canada began implementing its national retirement programs, let alone more than a century ago when Bismarck’s innovation was introduced.
“The picture in the heads of an awful lot of policy makers is still based on the model where you leave school, you get a good job with an employer who takes care of your pension, then you retire at 65. That isn’t the world we’re living in. Much of our public policy stems from a time where large employers had huge DB plans and this, plus the RRSP, plus the Canada Pension Plan was going to create a structure that would actually work.”
Rae said that companies are increasingly shifting away from DB plans that offer employees the security of defined payments at retirement to DC plans that shift the risk burden away from plan sponsors.
A new survey from conference sponsor Towers Watson supports this assertion. Results from the 2011 Pension Risk Survey, which polled 150 DB plan sponsors in Canada, show that 51% of private sector respondents have converted to DC plans, up from 42% in 2008.
Rae said most of today’s job creation is coming from smaller businesses that don’t offer a company pension plan, which means more young workers in Canada lack a private sector retirement savings solution.
“The good news,” he says, “is that through a series of changes we have made, we as a country have created an infrastructure of pension support,” which can be improved upon to fill the gaps rather than having to start the planning process all over again.
He said there is broad support across all levels of government in Canada to find ways to improve retirement income security, but there needs to be more open discussion of the issues in order to find workable solutions for those most in need.
“We have to continue to focus on the needs of people who are poor and who are really struggling. The other element we have to look harder at is the housing question…for older, poor seniors.”
Rae said that it is important for government to tap into the expertise of pension experts as well as organizations across all industries to determine how to improve policy.
“Where we have strength is that we have a mixed system that respects the role of the public sector. But at the same time we need to recognize that the private sector has always had, and will always have, a very significant role to play in how we create systems that are going to make a difference.”