Canada has held onto its top five position in a global comparison of pension systems, but continues to require significant reform to help Canadians secure sufficient retirement savings and to financially support an ageing population, according to the 2011 Melbourne Mercer Global Pension Index.
Many of the world’s retirement systems are under significant stress and even the world’s most advanced retirement income systems require ongoing reform to ensure they’re robust enough to support a rapidly aging population, said Mercer.
The Canadian index value fell slightly from 69.9 in 2010 to 69.1 in 2011 due to a small decline in each of the adequacy, sustainability and integrity sub-indices, but generally demonstrated no significant change from previous years, found the report.
Netherlands held its position as number one on the index. Australia regained its ranking as second in the world with Switzerland again making up the top three.
There is no perfect retirement income system, according to the index. No country received an A grade and 10 countries received either a C (major risks or shortcomings) or a D (major weaknesses and omissions).
In these uncertain economic times, the risk of governments not being able to financially support their aging population is becoming more of a reality unless significant pension reform is made now, said David Knox, a senior partner at Mercer and author of the report. The best pension systems adopt a multi-pillar approach to spread these long-term risks between governments, employers and individuals, he said.
“With CPP/QPP, OAS, GIS, employer pension plans and individual RRSPs, Canada has an excellent multi-pillar framework in place for retirement savings,” said Scott Clausen, a partner in Mercer’s retirement risk and finance business in Toronto. “However, Canada’s retirement system can still be improved. We encourage public policy makers to focus their efforts on increasing pension coverage for middle income employees in the private sector as retirement savings for this group continues to fall.”
The overall index value for the Canadian system could be increased by:
•increasing the coverage of employees in occupational pension schemes
•introducing a mechanism to increase the government pension age of 65
•increasing the level of household savings.
Positive responses to common global challenges:
•Increasing the state pension age and/or retirement age to reflect increasing life expectancy, both now and in the future, and thereby reduce the level of costs of the publicly financed pension pillar.
•Promoting higher labour force participation at older ages including the provision of phased retirement.
•Encouraging or requiring higher levels of private saving, both within and beyond the pension system, to reduce the future dependence on the public pension.
•Increasing the coverage of employees and/or the self-employed in the private pension system, recognising that many individuals will not save for the future without an element of compulsion or automatic enrolment.
•Reducing the leakage of funds from the retirement savings system prior to retirement thereby ensuring the funds saved, often with the associated taxation support, are used for the provision of retirement income.
© Copyright Canadian HR Reporter, HAB Press. All rights reserved.