tag:blogger.com,1999:blog-5433839636644874439.post257035684943596443..comments2024-03-04T13:37:11.022+00:00Comments on Canadian Financial DIY: CPP Adequacy "Myth" in Greg Hurst's Financial Post Pension ArticleCanadianInvestorhttp://www.blogger.com/profile/05645767559302303541noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5433839636644874439.post-17980796238059216352010-12-15T17:14:33.377+00:002010-12-15T17:14:33.377+00:00Hi Jean,
It appears that we agree on too much to ...Hi Jean,<br /><br />It appears that we agree on too much to remain formal, you can call me Greg. I unreservedly agree with all of the points in your first paragraph. In respect of the concentration risks of CPP enhancement I am also concerned, but it is not my biggest concern. In fact, there is a slighly different version of the pension myths on my blog, which includes concentration as the 7th myth (www.greghurst.ca/blog).<br /><br /><br />As for other solutions, I actually have proposed one, which is broadly outlined in a Benefits Canada Online Expert Panel article I wrote in August 2009, <i>The Politics of (DC) Pensions</i> (http://www.benefitscanada.com/pension/cap/article.jsp?content=20090817_162615_2168").Greg Hursthttp://www.greghurst.canoreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-78834976722669706642010-12-15T17:03:53.715+00:002010-12-15T17:03:53.715+00:00Hi Jean,
It appears that we agree on too much to ...Hi Jean,<br /><br />It appears that we agree on too much to remain formal, you can call me Greg. I unreservedly agree with all of the points in your first paragraph. In respect of the concentration risks of CPP enhancement I am also concerned, but it is not my biggest concern. In fact, there is a slighly different version of the pension myths on my blog, which includes concentration as the 7th myth (www.greghurst.ca/blog).<br /><br /><br />As for other solutions, I actually have proposed one, which is broadly outlined in a Benefits Canada Online Expert Panel article I wrote in August 2009, <i>The Politics of (DC) Pensions</i> (http://www.benefitscanada.com/pension/cap/article.jsp?content=20090817_162615_2168").Greg Hursthttp://www.greghurst.canoreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-38344439492066703362010-12-15T09:51:37.701+00:002010-12-15T09:51:37.701+00:00Hello Mr Hurst, thanks for the comment. While I ag...Hello Mr Hurst, thanks for the comment. While I agree that Canada does well in a relative sense compared to other countries, it doesn't do so well in an absolute sense. Yes, it is also true that if people used the system of RRSPs and/or DC savings diligently and with investing skill, the present system could theoretically deliver a good pension. The problem is practical. 1) too many people don't save enough, and saying "just do it" means people "just won't", which points to a mandatory solution. 2) few people have the investing skill due to lack of time and/or interest, which points to professional management (i.e. not RRSPs) 3) fees/costs are too high for many private sector products in Canada e.g. mutual funds which points to a solution with economies of scale and fiduciary duty 4) longevity risk, sequence of returns risk and investment horizon, old age health risk, issuer credit risk (GM/Nortel going bust), widest asset class diversification (i.e including private equity, arbitrage etc) are not well addressed with the current system, which points to a large scale common solution.<br /><br />The single biggest concern I'd have about a CPP solution is the concentration risk. If CPP were the prime base pension source and it went bad through mismanagement or misgovernance a la Caisse de Depot in Quebec that could be catastrophic. But how would a multi-employer private solution be exempt from that risk? e.g. http://pensionpulse.blogspot.com/2010/12/canadas-largest-mepp-takes-hit.html<br /><br />I'd love to see better alternatives than CPP but so far no proposal tops it. This is what Jonathan Keeselman concludes in his comparison of "big CPP" with alternatives: "A Big CPP fits well within the overall<br />retirement income system, with other components adapting to the increased CPP benefits over a<br />long phase-in period. Alternative reform proposals relating to the regulation of workplace pensions<br />and new voluntary supplemental or multi-employer pension schemes are potentially useful but no<br />substitute for the expansion of CPP benefits." see http://policyschool.ucalgary.ca/files/publicpolicy/Kesselman%20CPP%20online.pdfCanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-25943174491911984812010-12-15T00:36:36.927+00:002010-12-15T00:36:36.927+00:00As a fairly frequent author of pension articles, m...As a fairly frequent author of pension articles, mostly for an industry audience, it is rewarding to reach larger audiences through media such as the Financial Post. However, there are some challenges, particularly those of space limitations, which means that a complete airing on a complex topic requires dialogues such as initiated here.<br /><br />Let me be clear, I believe Canada's pension system is capable of providing pensions that are well in excess of adequate. Public-sector pensions more than demonstrate the adequacy available within our system. However the pension system is under-utilized in the private-sector and has effectiveness/efficiency problems in the area of individual savings. These problems warrant some solutions, but there are much better ones that can be tabled than CPP enhancements. Compulsory workplace pensions, with mandated low fees (0.50% per annum) are practically achievable, with a level of political will (which has yet to practically materialize).<br /><br />Mr. Lesperance takes particular issue with one of the six myths I presented concerning the adequacy of Canada's pension system. Readers should not rely on his interpretation of the Melbourne Mercer report but should review it themselves. Canada's score on the adequacy subindex, although only a "B" grade is achieved from the report's authors, is only marginally bested by the Netherlands (also only with a "B" grade). Relatively speaking, Canada seems to do very well when it comes to adequacy of the our retirement system.Greg Hursthttp://www.greghurst.canoreply@blogger.com