Our 11th annual DC Plan Summit, Looking Back To Look Forward, offered plan sponsors a vision of the future. From pension reform to new investment and communication strategies, delegates shared informative presentations and insightful dialogue to help shape the DC industry.
Session 1 – Keynote session
Get ready! What’s coming to the DC pension industry.
By Richard Worzel, Futurist and Author
The American recession has ended but the recovery will be anemic, at least for the next couple of years. Canada’s recovery will be better, but with wide variations. The resource economies of the west will do quite well as commodity demand recovers, but central Canada will continue to suffer—particularly as the Canadian dollar continues to strengthen as a petro-currency. Meanwhile, the economies of the rapidly developing countries are already into a vigorous recovery, which will cause inflation to return quicker and stronger than we might expect. Inflation will likely become more of a concern for investors than at any time since the 1970s.
Pension plan sponsors will need to take measured risks in order to fulfill their fiduciary responsibilities, but there are potentially nasty surprises lurking: the possibility of a new run on the American banking system because of loan losses from commercial industrial real estate; the possibilities of the bankruptcy of Greece and other countries, triggering a run on the European Union; and, worst of all, the potential insolvency of the U.S. government.
But perhaps the biggest challenge will be the aging population. First, there will be conflict between public and private sector retirees because of the differences in pension benefits. Next, private sector boomers may rebel at the relative paucity of their defined contribution (DC) plans, leading to class action lawsuits (starting in the U.S.) to force sponsors to grant more generous benefits, despite the settled legality of DC plans. In a world where voters are demanding pension security from legislators, plan sponsors may become a popular target for politicians seeking convenient scapegoats.
And Canadian governments will have their own financial difficulties. In 2007, economist Pierre Fortin of the Canadian Institute for Advanced Research projected that the finances of the two senior levels of government would erode by $38 billion a year by 2020, squeezing programs as healthcare crowds out other spending.
As well, there will be advances in computing and automation in the next 10 years that will make the developments of the past seem tame. Many workers will see their jobs replaced by automation, potentially threatening consumer demand and economic growth unless workers can retrain for new, more intellectually demanding work.
But the final wild card in pension management is greater longevity. Significant life extension would be massively disruptive to the pension industry, as well as to the principal assumptions on which our society operates.
The future that we face will be substantially different from the world we live in now. Pension plan sponsors and managers would do well to take that into account in their planning, which must become both more flexible and more sophisticated. BC
Continued on the next page…
Session 2A – The Art of the (Im)Possible: Politics and DC Pensions
How governments might react to pension reform proposals.
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