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Benefits Canada: Compulsion is the best solution for pension provision

Benefits Canada: Compulsion is the best solution for pension provision

By Tom Murray, Head of Product Strategy, Exaxe.

Up to the late-19th century, everyone provided for his or her own retirement either by saving or by using “The Waltons method” of having large families, who would take over the farm and run it when you got too old to do it yourself. It was only in the 20th century that old-age provision was deemed to be a government/employer issue and the people’s personal savings were to top this up for a luxury retirement of cruises and wintering in Florida.

It now looks like the 20th century was an aberration for pensions. Those DB plans that covered the majority of the workforce were suited to the particular mode of large-scale heavy engineering industrialization and were feasible because firms were constantly expanding and most people didn’t live for long in retirement.

Now, increases in longevity have moved the average amount of time spent in retirement to 20 years and the forecast decline in the proportion of the population and the workforce means that it’s no longer possible for these plans to maintain their benefit levels. Most plans are severely underfunded now and have been closed to new entrants in a desperate attempt to reduce future liabilities. The 20th-century model is dead.

The 21st century is an era of high labour mobility with loose ties between the employer and the employee and increasing longevity. This means that people either have to work much longer or provide the income that they will live on in retirement themselves, as the paternalistic link between employer and employee is broken.

The question is, How are we going to move people from being passive recipients of pensions to being active accumulators of wealth in order to achieve the means to retire? Retirement needs to become a goal that people aim at, rather than something that just automatically happens when you hit a certain age...

Read the full article on the Benefits Canada website.

Benefits Canada is the country’s original and most influential pension and benefits publication for key decision-makers in Canadian workplaces. Senior finance executives, pension board trustees, benefits professionals, human resource managers and industry specialists have turned to the magazine for 35 years to help make informed decisions about their pension and benefits plans.

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