It was June 1990. The occasion was the annual ACPM conference, and we were in a big room at the Château Laurier in Ottawa.
As the new editor of Benefits Canada, I was about to speak on the history of pensions in Canada—a topic I knew nothing about. I was paired with Terry Buddin, who sold investment products for a local money management firm and also knew nothing about pension history.
But we both knew technology. We would present pension history in pictures, using slides. Our secret was two synchronized slide projectors. One click of a button would send a picture of the Rockies to screen No. 1; another click, and Pierre Trudeau would appear on screen No. 2.
So there I was at the podium, clutching the clicker, waiting to deliver the keynote luncheon presentation. The 200 delegates, mostly men in grey three-piece suits, were filing into the room. Then it happened: an actuary tripped on the extension cord, unplugging the projectors. Power was quickly restored, but the slides were no longer synchronized.
When we mentioned obscure pension legislation from the ’50s, a picture of Niagara Falls appeared on the screen. When we mentioned the item about Pierre Trudeau, a picture of a goat mysteriously appeared. And so on. The crowd loved it, though. I could tell by their gales of laughter.
Luncheon industry presentations continue to be as riveting as that long-ago address. However, in its 35-year tenure, Benefits Canada has witnessed enormous change: social, technological and economic. These changes are severely testing the delivery of pension and benefits schemes in Canada, today and going forward. Here are four such changes.
1. We are living longer.
In 1975, research from Columbia University’s school of public health showed that less than 45% of 65-year-old Canadian men were projected to live to age 80. That number jumped to close to 65% by 2005.
Why does this matter? Take the Ontario Teachers’ Pension Plan, for example. One of the best-managed pension schemes in the world, it has achieved an average annualized return of 10% on its investments since 1990—but it still managed to report a $9.6-billion funding shortfall in 2011. Try explaining that to 300,000 teachers.
On its website, Teachers’ attempts to respond to some of the commonly held myths about the pension plan, such as, “Actuaries are to blame for recurring funding shortfalls in the Teachers’ plan.” (Everyone loves to blame actuaries.) The website states: “No one is to blame. No one can accurately predict the future….Key assumptions made in the 1970s for the Teachers’ pension plan have been largely accurate, with one exception: predictions about life expectancy. Plan members are living longer than anyone projected.”
And so it goes for the entire pension system.
2. We spend more of our working lives sitting in front of computers.
Slide presentations became obsolete long ago, but we now carry home laptops, iPads and BlackBerrys. Some say we never leave work behind. This may be why one in three working Canadians say work pressures make them physically ill. And obesity rates have more than doubled in the last 15 years, with obesity seen as a contributing factor of many chronic diseases.
Inability to cope with work and family stress, mixed together with a sedentary lifestyle, is a witch’s brew for employers, increasing the incidence of chronic disease and adding to the cost of employee benefits.
3. Women have changed the workforce.
According to Statistics Canada, in 2009, 72.9% of women with children under the age of 16 living at home were employed—nearly twice the rate in 1976 (39.1%).
Thirty-five years ago, a working mom could claim a maximum of 15 weeks in maternity benefits. Today, she can claim up to 50 weeks. Then, there was also no Canadian Human Rights Act to protect women against sexual harassment in the workplace.
Today, the health benefits community is focused on healthier workplaces, flexibility and work/life balance. Is this because there are more women working? I think so.
4. We now own shopping malls in Rio.
1990 was the year I made my debut as a luncheon speaker. But it will be better remembered as the year of the federal government’s decision to relax the foreign property rule (FPR).
The FPR was a Trudeau-era relic designed to keep capital from fleeing Canada. Pensions plans were limited to investing only 10% of their assets in non-domestic assets. In 1990, the cap was increased to 12%, on its way to being completely eliminated by 2005.
At that time, Canadian pension funds held an estimated $15 billion in assets offshore, most of it ($12 billion) in the U.S. Today, Canadian pension funds have parked more than $600 billion offshore—including a shopping mall in Botafogo Beach, Rio de Janiero, which is partially owned by the Canada Pension Plan Investment Board (CPPIB).
As more money moved offshore, the domestic money management industry was swept away. Today, global firms such as BlackRock, State Street, Fidelity, J.P. Morgan and PIMCO dominate the annual list of Top 40 Money Managers.
Thirty-five years ago, public sector pension assets were lent to government as non-marketable bonds at very attractive rates—presumably to help them do all of the things that governments do, such as build hospitals, roads, airports and bridges.
Today, the large public sector pension plans (e.g., Teachers’, OMERS, the CPPIB) are massive, well-governed independent financial entities that scour the world looking for investment opportunities in infrastructure projects—but at much better returns.
With all of these changes, what’s stayed the same? The pension plan offered to federal members of Parliament, for one.
In 1985, actuary and ex-MP Paul McCrossan helped Finance Minister Michael Wilson to draft pension reform proposals. By then, the unfunded liability in the MPs’ plan was $135.9 million. In his May 1985 budget speech, Wilson announced that the MPs’ pension plan would be changed to more closely reflect the realities of private sector plans.
“Wilson asked me to help him present his proposals for changing MPs’ pensions to the last [Progressive Conservative] caucus meeting before the 1988 election,” wrote McCrossan in Benefits Canada. “A riot broke out. For about 20 minutes, Wilson tried to explain either the problem or his solution. He was not allowed to speak. Member after member shouted him down. Whenever calm was restored and Wilson tried to speak, bedlam erupted. Finally, he gave up.”
And so has every finance minister ever since. Some things never change.
Paul Williams was editor of Benefits Canada from August 1989 to June 1994 and publisher from 1995 to 2008. paulowilliams@rogers.com
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