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Everyone benefits from strong pension plans

We the North
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OPSEU Member Benefits: Pensions

An important new study outlines the economic impact of Canada’s Defined Benefit (DB) pension funds. Unprecedented data in “Defined Benefit Pension Plans: Strengthening the Canadian Economy” demonstrates that defined benefit pension plans are an important source of income. Pensions sustain retirees, lift seniors out of poverty, and contribute to the economy of communities.

Defined Benefit pension plans, such as those many OPSEU members contribute to including the OPTrust, OMERS, HOOPP and CAAT Pension Plan, as well as the government-managed Canada Pension Plan, provide significant benefits to the Canadian economy.

The study reveals that of the $29-30B that pensioners in Ontario received in 2012, $25-26B went directly back into the economy as spending, while a further $3B was paid back to the government in taxes.  How would our communities be affected if pensioners didn’t receive this income – would our neighbourhood shops and local services go out of business?

Increasing numbers of Canadians anticipate an old age with insufficient income. Those without DB pension plans who find themselves in poverty may receive government income supplements (GISs). We now know that $2-3 billion is saved by the Canadian government every year because of the mandated savings generated by defined pension benefit plans. Only 10-15% of those receiving a DB pension have a small enough income to qualify for GISs vs. 45-50% of the population not receiving a DB pension.

Pensions are critical to the economy of smaller towns and rural communities, where they represent a large percentage of local income. As per the recently released study, in Elliott Lake, for example, income from pensions (pensions, GIS, Old Age and CPP) represents approximately 35% of the local economy. The business generated from the resulting retiree spending represents many thousands of Ontario jobs.

Strength is found in solidarity, and pensions are an example of how solidarity works. By pooling resources, we mitigate risk. Pension plans are able to earn more than individuals, and allow a collective access to expertise that would otherwise be out of reach.

We must look at the long term, and the need to ensure a dignified old age over many decades to come. We cannot give in to pressure from government and corporations who would like to satisfy immediate pressures to exercise austerity measures.

Retirees are a very vulnerable group. Many of us are concerned about what will happen when we retire, or are no longer able to work. We must push back against anti-pension rhetoric, and defend the expansion of defined benefit pensions to cover an ever-larger percentage of Canadians.

In 2012, OPSEU prevented the Ontario Liberals from using the pension assets of our members who work in the colleges and the Ontario Public Service to create a “pensions superfund”. This “superfund” would have put our retirement savings into the hands of government money managers.

We can be proud of this success, however we must continue to be vigilant. We can all help to advocate for good pensions for all.

Pensions matter to all of us. Please share this important message with your friends, families and communities.

For more information

Defined Benefit Pensions infographic

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Globe & Mail

Read on-line

New analysis confirms that defined benefit pensions provide significant benefits to Canadian economy

Toronto (October 22, 2013) – Canadian retirees with defined benefit (DB) pensions are far less likely than other retirees to collect the government’s Guaranteed Income Supplement (GIS), shows a study on the economic impact of DB pension plans.

The study, conducted by the Boston Consulting Group (BCG), confirms that an estimated 10 to 15% of DB beneficiaries collect the GIS, compared with 45-50% of other Canadian retirees. DB pensions reduce the annual pay out of GIS, a supplementary government benefit provided to low-income seniors, by approximately $2-3 billion a year.  The study also finds that defined benefit recipients contribute $14 – $16 billion annually to government coffers across Canada through income, sales and property taxes.

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

DB pension plans are retirement vehicles under which the plan sponsor, typically a large employer, commits to a specified, predictable monthly benefit on retirement based on the employee"s earnings, years of service and age. Both the member and the employer contribute, with the vast majority of pensions paid coming from investment returns on these contributions.  An analysis by the four plans that commissioned the study found that as much as 80 cents of every pension dollar comes from investment returns – a testament to the sound funding and “best in class” investing of the pension funds.

Conclusions of the BCG analysis included:

  • 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 9% of the total earnings in those communities versus 6% 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 two most significant advantages DB plans offer members are pooling longevity risk and pooling asset risk. A DB plan allows members to save at a collective rate consistent with the average life expectancy or distribution within the group. Similarly with asset risk, DB plans can typically maintain an asset mix reflective of the group rather than any one individual. Both advantages provide stability for members, allowing for a consistent standard of living throughout their lives," said Michael Block, BCG Principal and project lead

A separate analysis by BCG released in June found that Canada’s ten largest public pension funds – which include the defined benefits plans in this new analysis – provide Canadians with one of the strongest retirement income systems in the world and also contribute significantly to national prosperity.

Among the key findings of the June study:

  • In 2011, these pension plans collected more than $70 billion in contributions and in that same year, paid out $74 billion in retirement benefits to Canadians, or 49% of all non-OAS retirement benefits, and invested approximately 35 per cent – or $714 billion – of Canada’s total retirement assets
  • The Top Ten pension funds have invested roughly $400 billion in Canada, including $100 billion in real estate, infrastructure and private equity;
  • They comprise four of the top 20 global commercial real estate investors and four of the top 20 global investors in infrastructure assets;
  • They directly employ 5,000 professionals in the Canadian financial sector and an additional 5,000 employees in their real estate subsidiaries.