Canada faces US$2.5-trillion pension shortfall: Mercer

By Staff | October 21, 2019 | Last updated on October 21, 2019
2 min read
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Canada improved its standing in the latest edition of the Melbourne Mercer Global Pension Index (MMGPI), but there’s still room for improvement.

The 2019 index, which ranks the pension systems of 37 countries from around the world, saw Canada jump to ninth place, up from 10th in 2018.

Canada’s overall index value — measured as a weighted average of its ratings in the adequacy, sustainability and integrity categories — increased to 69.2 from 68, and the country retained its overall B rating on the index.

The improved showing was due in part to the growth in assets under the Canada Pension Plan and the Quebec Pension Plan. But, in spite of Canada’s higher ranking, “large risks are on the horizon,” said Jean-Philippe Provost, senior partner with Mercer Canada’s wealth business, in a release.

Notably, Mercer reported that Canada has a US$2.5-trillion gap between existing retirement savings and future retirement needs. The country’s weakest rating (61.8; C+) was in the sustainability category, which measures the long-term sustainability of retirement income systems.

Mercer noted that Canada’s ranking reflects demographic forces, limited access to corporate pension plans and a challenging long-term investment environment.

The MMGPI report said that Canada could improve its standing by creating attractive retirement products for people who don’t have employer-sponsored pensions, increasing household savings while reducing debt, reducing government debt as a percentage of GDP and increasing the labour force participation rate at older ages.

The top-ranked country in the MMGPI was the Netherlands, with an index value of 81. The bottom-ranked country was Thailand, with an index value of 39.4.

This year’s report also documented the “wealth effect,” which shows that individuals take on more debt as their pension assets increase.

“As the wealth of an individual grows, whether it be in home ownership, investment portfolios or their retirement savings, so does their comfort with amassing debt,” David Knox, senior partner at Mercer, said in a statement. “The evidence suggests on a global basis, for every extra dollar a person has in pension assets, their net household debt rises by just under 50 cents.”

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