To improve, Canada could develop a product for employees without a workplace pension plan, increase savings levels for middle-income earners and increase the retirement age, according to the index.
“When we look at the retirement age, Canada is the only country that’s moved in the direction of bringing it back to 65,” says Scott Clausen, a partner in Mercer’s retirement business in Toronto. “We’re definitely seeing trends [in] all the developed countries in the world of recognizing that people are living longer, of extending the retirement age to later than 65, up to 67 or 68.”
On its own, the shift back down to 65 could reduce the sustainability of Canada’s retirement system, he says. But while the index didn’t include this factor in the 2016 ratings, it also didn’t include the incoming Canada Pension Plan enhancement.
“I would expect the increases would be more of a benefit than the change in retirement age [would be a disadvantage] but not knowing the mechanics of all the details of how it’ll work, I’m not sure,” Clausen says, adding the enhancement addresses increased savings levels for middle-income earners.
To address the problem of most Canadians not having access to a workplace pension plan, Clausen says the government could look into reducing regulatory complexity. “We do live in a country where there are significantly different rules across every jurisdiction on how to administer a pension plan,” he says. “So when you have employers with employees in every jurisdiction, there’s always that desire for simplicity, for having one set of fairly uniform rules. That would go a long way.”
Clausen also notes some provinces are starting to take action, with Quebec eliminating the solvency funding requirement and Ontario’s consultation on the same issue.
“I think those types of actions, while they may not encourage new plans to be created, they could encourage companies to keep the plans open that they have,” he says.
As more employers move from defined benefit plans to defined contribution plans, Clausen notes Canada’s rating on the Mercer index could slip.
“This year, there was an adjustment made to countries that are significantly on the [defined contribution] side to recognize that there is a little bit less sufficiency in a DC environment where individuals have to look after themselves,” he says.
Denmark and the Netherlands, the only countries to receive A ratings, have mandatory or quasi-mandatory pension participation, and offer plans with defined benefit formulas that could be reduced if the funded status changes.
Overall, Canada ranked eighth in the index, one spot lower than in 2015. The drop, Clausen says, was primarily due to the improvement in Singapore’s system, but he’s hopeful Canada will move back up next year.
“[Singapore] increased their benefits,” he says. “They jumped one. We increased CPP. We want our spot back.”