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Oct 24, 2013

Defined benefit pensions can provide economic boost: Study

Retirees with DB pensions far less likely to depend on Guaranteed Income Supplement
    
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Defined benefit (DB) pension plans can provide significant benefits to the Canadian economy by minimizing the number of retirees who collect the government’s Guaranteed Income Supplement (GIS), according to a Boston Consulting Group study.

An estimated 10 to 15 per cent of DB beneficiaries collect the GIS, compared with 45 to 50 per cent of other retirees. DB pensions reduce the annual payout of GIS by $2 to $3 billion a year, found the study.

DB pension recipients contribute $14 to $16 billion a year to government programs throughincome, sales and property taxes.

An analysis of several DB pension plans found as much as 80 cents of every pension dollar comes from investment returns.

Other key findings include:

  • In the years analysed (2011 and 2012), DB beneficiaries spent $56-63 billion annually on durable and consumable goods.
  • DB pension beneficiaries paid taxes estimated at $14-16 billion annually: About $7-9 billion in income tax, $4 billion in sales tax and $3 billion in property tax.
  • DB pension benefits had the greatest impact on small towns, with DB pensions forming on average nine per cent of the total earnings in those communities versus six per cent for large metropolitan areas.
  • The impact of DB pensions was especially strong in Ontario, translating into $27 billion in expenditures on consumables and durables, shelter, recreation, and services; and generating $6 billion in taxes.

The study was commissioned by a group of DB pension plans including Healthcare of Ontario Pension Plan (HOOPP), Ontario Municipal Employees Retirement System (OMERS), OPSEU Pension Trust (OPTrust) and Ontario Teachers’ Pension Plan (OTPP).

"DB retirees are far less likely to rely on government social assistance in retirement, freeing up funds for other government programs or priorities. Their financial independence is a direct result of the pensions made possible by the asset management expertise in our DB pension plans," said Jim Leech, president and CEO of Ontario Teaches' Pension Plan.

"DB retirees can count on greater certainty in retirement with a stable monthly income based on the number of years they contributed to their plan, so they are more comfortable in spending what they receive, helping fuel the Canadian economy. Not only do they pay up to $63 billion annually for goods, services, and related sales and property taxes, they pay an additional $7-9 billion in income taxes every year,"said Bill Hatanaka, president and CEO of OPTrust.

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