HOOPP Warns of Canadian Retirement Anxiety

Rob Carrick of the Globe and Mail reports that a new poll suggests people would rather have money in their retirement fund:
The head of one of the country’s largest pension plans is a skeptic on the matter of whether people will save enough for retirement all on their own.

“My level of confidence is zero,” said Jim Keohane, president and CEO of the Healthcare of Ontario Pension Plan, or HOOPP. “Life gets in the way of saving.”

That’s kind of bad news because people can barely afford life these days – how will saving for retirement ever fit in? HOOPP is hoping to generate some discussion about this question by releasing the results of a survey about retirement on Tuesday.

The poll results validate the personal-finance theme of the federal election campaign so far, but also highlight a deficiency in all the talk about families struggling to get ahead. People are nearly as worried about the state of their retirement savings as they are about the affordability of everyday life.

Three-quarters of the 2,500 poll participants said they were concerned to some degree about having enough money in retirement, while 82 per cent said they worried about the cost of living. Concern about both issues ranked well ahead of taxes, physical and mental health, personal debt and government.

As part of their focus on helping people get ahead, federal parties have promised to cut cellphone bills, help first-time home buyers, lower taxes and give parents and seniors more money in government benefits. Retirees have rated some attention, but retirement itself has hardly been talked about.

Tax cuts and benefit increases are easy to explain and understand, and they speak directly to the feeling of falling behind financially as a result of living costs rising faster than incomes. You can also argue that they address retirement worries by helping people find more money for their registered retirement savings plans and tax-free savings accounts.

The HOOPP poll suggests people instinctively know that this money won’t trickle down to their retirement savings. Asked whether they’d take a slightly lower salary in return for a work pension plan (or an improved work pension plan), 76 per cent went for the pension.

As a defined benefit pension plan that pays its members benefits for life based on their earnings while in the work force, HOOPP has a particular position on how people can best save for retirement. You can sum this view up as more pensions, please, and preferably defined benefit plans.

The latest Statistics Canada numbers on pensions show that 37.1 per cent of workers were covered by a registered pension plan in 2017, down from 37.5 per cent in the previous year. In the HOOPP survey, 44 per cent of participants were in a pension.

HOOPP thinks politicians at all levels could be more creative and open-minded in figuring out ways to adapt the defined benefit pension model in ways that would make it attractive for employers. DB pensions are slowly fading because employers don’t want to carry the financial obligations.

Mr. Keohane said pensions, with their forced saving, professional management and low costs compared with retail investment products, are a more efficient way for people to save for retirement. “One of the best ways you can put more money in people’s pockets is by making their savings more efficient,” he said.

In the HOOPP poll, it’s clear that people who don’t have pensions struggle to put money away for their retirement. Of those who said they didn’t have a workplace pension, 49 per cent had not saved at all for retirement.

Superficially, it sounds like giving people more money through tax cuts and higher benefits would address this shortfall. But as Mr. Keohane said, life gets in the way of carving out part of your paycheque for saving.

This leads us back to pensions, a strong remedy for financial anxiety that hasn’t been talked about at all in an election campaign mostly about money.
Yesterday afternoon, when I was finishing up my comment on CAAT's innovative DBplus defined benefit pension design which is open for new membership, James Geuzebroek, HOOPP's Senior Manager, Public Relations & Corporate Communications, reached out to me to share their latest poll release on why retirement anxiety is high for Canadians.

Before I get to this, you might have noticed HOOPP's Newsroom has undergone a very significant and worthwhile makeover. I was asked to partake in the test pilot so obviously I am heavily biased but other pensions, please take note, your newsrooms on your websites desperately need a similar makeover.

Anyway, let me get straight to the HOOPP press release on retirement anxiety in Canada:
New research released today by the Healthcare of Ontario Pension Plan (HOOPP) shines a stark light on Canadians’ concerns about retirement security, and their expectations for a solution.

Findings from the public opinion research included:
  • More Canadians are worried about saving enough for retirement (75 per cent) than are worried about current personal debt (55 per cent) or government debt (64 per cent);
  • Eight out of 10 said they would rather have a better pension (or any pension) than a higher salary; and
  • Eighty-one per cent believe the shrinking of workplace pension coverage will reduce the quality of life of Canadians.
The findings are based on a recent survey of 2,500 Canadians conducted by Abacus Data. It gauged their feelings of retirement preparedness, their views on workplace pensions and the implications of decreasing pension coverage. Read the executive summary and additional materials related to the Abacus survey.

“It is clear that Canadians have a high level of anxiety around retirement security and that we, as a country, need to talk about how to address this growing concern,” said Jim Keohane, President & CEO, HOOPP. “HOOPP’s research from last fall, about the five value drivers that make retirement more affordable, show there are options. Today’s survey results, combined with our research on the value drivers, can help drive a conversation and meaningful action toward more affordable retirement savings for more Canadians.”

David Coletto, CEO of Abacus, said: “These results present a clear call to action to enhance retirement affordability. Canadians see the problem, understand its impacts, believe that an affordable retirement can be achieved, and want to collaborate with employers and government to find a solution. At the same time, they are prepared to do their own part by choosing better pensions over salary increases.”

Other key findings from the research include:
  • Seventy-eight per cent believe there is a moral obligation to ensure children today have pensions of the same coverage and quality their parents and grandparents had.
  • Eighty-three per cent believe government should modernize regulations to allow for more innovative pension plans and savings arrangements.
  • Eighty per cent would rather employers make direct contributions to a retirement plan over receiving that money as salary.
  • Seventy-six per cent believe governments can save money by supporting pensions that are more affordable.
Keohane added: “HOOPP commissioned this research to help inform a public dialogue between individuals, employers and governments. When workers and retirees know they have financial security, it is good for their personal well-being and for the strength of the economy overall, so this is an important issue for our members.”

HOOPP released the report at an event today in Toronto, featuring a panel discussion on the findings and how we can help improve retirement security. In addition to HOOPP’s Keohane and Abacus’ Coletto, the panel featured notable employer and employee perspectives.

“All across the country, we hear from workers who a want better workplace pension for their retirement. Moreover, they’re ready and willing to pay their fair share for that peace of mind,” said Hassan Yussuff, President, Canadian Labour Congress. “We recognize that there are challenges for employers, which is all the more reason we are eager to collaborate to develop solutions for investing in workers’ futures.”

Susan Nickerson, Partner with Torys LLP’s Pensions and Employment Practice, said: “While employers that I speak with do have concerns about the complexity and cost of offering pension plans, they also know the value of having employees who are financially healthy. We need to develop more innovative options outside of conventional DB and DC plans, and we need to supplement these offerings with financial literacy programs that help ensure employees of all ages recognize the value of workplace pensions.”

About the Healthcare of Ontario Pension Plan

HOOPP is the pension plan serving Ontario’s hospital and community-based healthcare sector, with more than 570 participating employers. HOOPP’s membership includes nurses, medical technicians , food services staff, housekeeping staff, and many other people who provide valued healthcare services. In total, HOOPP has more than 350,000 active, deferred and retired members.

HOOPP operates as a private independent trust, and is governed by a Board of Trustees with a sole fiduciary duty to deliver the pension promise. The Board has representation from the Ontario Hospital Association (OHA) and four unions: the Ontario Nurses' Association (ONA), the Canadian Union of Public Employees (CUPE), the Ontario Public Service Employees' Union (OPSEU), and the Service Employees International Union (SEIU).

About Abacus Data

Abacus Data is a market research and public opinion firm based in Ottawa. We conduct research for and provide strategic counsel to some of North America’s leading corporations and advocacy groups by delivering global research capacities with the attention to detail and focus of a boutique firm. Our team has over 45 years combined research and consulting experience working with associations, using public opinion research to inform internal strategies and raise issues on the public and government agenda.
The folks at HOOPP are not only running one of the best pension plans in the world, they also intimately know the value of a good pension and are doing more than their part advocating on behalf of defined benefit pensions in Canada and elsewhere.

And unlike many other large Canadian pensions, at HOOPP, they practice what they preach, offering all their employees a defined benefit pension plan (basically they are invested in HOOPP's plan) which is a very big perk and part of a great overall compensation package.

I mention this because Canada's large pensions don't offer DB pensions to all their employees, only to senior managers which I find ridiculous. And even at CDPQ, I learned that CDPQ Infra offers its employees (even senior employees) a competitive defined contribution plan while Sabia et al. all receive a gold plated defined benefit plan.

Apparently some consulting shop said "that's what the market offers" and the board signed off on it but I can tell you these compensation consultants are out to lunch, totally clueless.

Anyway, don't get me started on the two-tiered compensation system at Canada's large pensions where senior managers get paid extremely well and enjoy a defined benefit plan whereas the rest of the employees don't.

At the very least, Canada's large pensions (excluding HOOPP) should join CAAT's DBplus and offer all their employees the security and dignity of a defined benefit (DB) plan.

[Note: Wayne Kozun, CIO of Forthlane Partners and former SVP at OTPP shared this with me: "I am pretty sure that all non-unionized employees of OTPP get DB pensions via OPB (which is now managed by IMCO)."]

Back to HOOPP's new poll showing retirement angst in Canada is on the rise and most Canadians are rightfully worried and would wisely prefer a defined benefit pension for life instead of a higher salary.

First, to be clear, retirement angst is on the rise everywhere, not just in Canada. People are living longer, wages are stagnating, cost of living is going up, debts are skyrocketing as people are getting squeezed, so it's no wonder many can't save and are worried about falling into pension poverty in their golden years.

Some Canadians that enjoyed a high income and invested wisely over the years -- mostly in exchange traded funds, balancing their stock and bond allocations -- were able to save but even the savviest investors are worried about outliving their savings and know full well that nothing beats a gold plated, well governed, professionally managed defined benefit plan that invests across public and private markets all over the world over the long run.

Every other day, I talk to some savvy retired Canadian investors about investing in high dividend stocks like Bell, Telus, Enbridge, and Canadian banks and they too are worried. A stock that pays 5%+ in dividends doesn't guarantee you 5% return a year because if the stock gets slammed and the company cuts dividends, you can find yourself in the red very quickly.

Bonds yield peanuts and will soon yield negative if trends in Europe come to North America, and so even savvy investors are forced to take risks they are uncomfortable with to enjoy a steady 5 or 6% annualized return and they know in any given year, they can get clobbered in public equity markets.

Are you with me so far? Also, apart from low risk dividend investors, I also meet some arrogant traders who think they're God's gift to trading Some have one or two good years or even a string of good years and then "BAM!", they get slaughtered and the market humbles them. I tell everyone the same thing: "Nothing beats the security and dignity of a defined benefit plan, period."

These markets are brutal, just brutal, and even the best hedge funds are finding it hard to consistently deliver alpha (except for Citadel, Millennium and a few other elite funds that are delivering steady and respectful risk-adjusted returns).

HOOPP's CEO Jim Keohane nailed it, forced savings, professional money management and low costs are the secret recipe to alleviate rising Canadian retirement angst.

Then we get into public policy and as you can read from my recent comments on revising the DB pension plan failure and Bob Baldwin's reflections on DB and pension plan design, some of these debates can get very intricate and even polarizing. 

But let's not debate one thing, retirement anxiety is on the rise in Canada and our leaders are not addressing it in any meaningful way. In fact, on Monday night, I watched Canada’s political leaders debate along with millions of others and wasn't impressed, commenting this on LinkedIn the day after:
Watching the debate last night was brutal, much like watching paint dry. The narrow focus on climate and indigenous rights was ridiculous, as if health, education and the economy need to take a back seat to these two issues. At one point, I was so disgusted, I flipped the channel to Dancing With the Stars because I figured if I’m going to waste my time watching mind-numbing nonsense, I might as well be entertained. Oh, Scheer won, but that’s not hard given his opponents set the bar low. (end of political rant)
It's really hard not to get cynical watching these debates, there are serious issues in Canada that aren't being addressed or even discussed properly.

For example, on Tuesday, the National Institute on Ageing (NIA) released a report, The Future Cost of Long-Term Care in Canada by Dr. Bonnie-Jeanne MacDonald, Dr. Michael Wolfson, and Dr. John Hirdes, projecting that long-term care costs will more than triple within 30 years, from $22B today to $71B by 2050:
With baby boomers starting to turn 75 next year, time is running out to improve system sustainability and the availability and quality of long-term care options in Canada. A generation of Canadian seniors is at risk of going with unmet care needs as they age. This projected increase in cost would amount to 19 per cent of personal income tax by 2050, up considerably from 9 per cent today - expressed as proportion of total provincial and federal personal income tax revenue.
Of course, none of this was discussed by any of the leaders on Monday night, and it's not all their fault, the moderators were terrible as was the format of the debate.

Still, we have serious issues to contend with over the long run, growing retirement anxiety will only exacerbate the cost of long-term care in Canada.

Interestingly, a medical study which came out today found that losing your job increases your risk of a heart attack, which makes sense since people aren't as mobile, they're more stressed, etc.. I can only imagine how good pension poverty is going to be for Canadians suffering from heart problems.

Again, it's important to understand that universal health, education and retirement are the pillars of our democracy and linked to the quality of life. We need to understand the most cost effective way to continue delivering on all three fronts.

A big part of this blog is to advance the discussion on retirement policy and I won't lie, I'm a huge believer that well-governed defined benefit plans for all our citizens is the best path forward to bolster our retirement system and the economy over the long run.

And I'm a Conservative, believe mostly in right-wing economics (not the cooky stuff), and still believe that large, public, well-governed defined benefit pensions managed by professional pension fund managers are the best way to address retirement angst and bolster the economy over the long run.

Then again, what do I know, I also believe we need a national pipeline that crosses the entire country from East to West and the hell with radical environmentalists peddling their grossly misinformed and warped views!

On that note, I end this comment and leave you with some more food for thought. Someone sent me a Mercer report to the Canadian Medical Association on the potential retirement savings options for Canadian physicians. You can read this report here.

I noticed the Ontario Medical Association is discussing the advantages of a retirement plan on its website and something is up as my sources tell me Common Wealth which was founded by Alex Mazer and Jonathan Weisstub and is chaired by former OMERS CEO Michael Nobrega is working with the OMA to help get a DB pension for Ontario physicians off the ground.

If true, this is great news but my question to the Ontario Medical Association would be very simple: Why not just join HOOPP or CAAT's DBplus?

Lastly, I did get invited to a HOOPP conference in Toronto discussing retirement security:

But I will publicly state that I rarely attend conferences and if I do, I expect to be sponsored and my expenses fully covered or else it's a no-go on my end.

I did ask James Geuzebroek to let me know if any clips from this event will be posted on YouTube so I can share them here.

Below, the majority of Canadians are worried about saving enough for retirement and believe governments should modernize rules around pension plans, according to a new poll. CTV's Chief Financial Commentator Pattie Lovett-Reid has the details. Click here if it doesn't load below.

Update: Wayne Kozun, CIO of Forthlane Partners and former SVP at Ontario Teachers' followed up after reading this comment to correct something:
I am sure that OTPP non-union employees are part of OPB - I am a member of OPB by virtue of my time at OTPP. I know that HOOPP investment employees are part of the HOOPP plan. I am guessing that OMERS employers are also part of OPB. IMCO employees are certainly part of OPB. The Ontario PSPP is administered by OPB.

This is from page 56 of the 2018 OTPP annual report:
"Ontario Teachers’ employees participate in the Public Service Pension Plan (PSPP) and Public Service Supplementary Plan (PSSP), or the OPSEU Pension Plan, all of which are defined benefit plans. Employees based outside of Canada are eligible to participate in local contributory pension plans based on local regulations and market practices. "

I thank Wayne for correcting me on this issue as I was under the impression most employees at Canada's large pension funds (at least those not part of senior management) only have access to a defined contribution plan, not a defined benefit plan. I know this is the case at PSP and the Caisse and suspect it's also the case at CPPIB. If you have anything to add, please contact me at LKolivakis@gmail.com.