PSP Investments' CIO on the Relevance of the Canadian Model

PSP Investments' CIO, Eduard van Gelderen, shared a paper he co-authored with Gerard Bergsma in the July issue of the ISM Journal for International Business analyzing the Canadian model for African pensions plans, especially in Ghana:


Among the different investment models around the world, the Canadian model is considered one of the most successful. Having its origin in the restructuring of the Ontario pension plan in the nineties, this model has performed strongly over the last few decades. The Canadian model is a combination of single purpose, strong governance, and internally managed investment. The report “The evolution of the Canadian pension model; practical lessons for building world-class pension organizations” not only describes the merits of the Canadian model in great detail, but it also suggests that this model could serve as a blueprint for other pension funds. More specifically, it emphasizes the relevance of this model for new pension funds in emerging markets. People's Pension Trust in Ghana is such a pension fund. This article analyses the extent to which the establishment of a pension service in Ghana follows the lessons learned from the Canadian model.


Pension management has become a hot topic as of late. People are living longer and have become more dependent on their retirement income. Pension funds are also an important supplier of capital to the real economy and, given their large investment pools, an influential force in society. The pension funds’ patient capital and long-term investment horizon could act as a stabilizing force in the global financial system (Bédard-Pagé et al., 2016), but others warn that their use of derivatives and leverage could increase systemic risk (International Monetary Fund, 2019). Public pension plans can be found worldwide, and very large public pension plans exist in the US, Canada, UK, the Netherlands, Australia, and Japan. The majority of the public pension plans, as we know them today, date back to the pension reforms in the nineties. The debate at the time was that governments could no longer rely on the pay-as-you-go system to deal with the growing pension liabilities going forward. An important consideration was that the retirement of the baby boomers would peak between 2020-2040, and the change in demographics would impact the age dependency ratio significantly (Disney, 2000). The move to a funded pension system was a necessity, but it did require several political trade-offs. The positives were that the retirement system would become more transparent with a more explicit link between contributions, benefits, and market returns. Moreover, the premise was that the real return of the funded system would be higher, and therefore more efficient. However, the drawback was that the government would lose a critical tool to redistribute wealth between wage and age groups based on their political beliefs.

More recently, the public pension plans came under scrutiny again. The demographics changed as expected, but longevity risk has been structurally underestimated. Moreover, in many cases, the basis for the pension benefits is (too) rich, while the low-yielding investment environment puts additional pressure on defined benefit plans going forward. Although a variety of discount rates are in use globally (Landon & Smith, 2019), low discount rates increase the value of the liabilities, which translates to a decline in the funding ratio. In the case of public pension plans in the US and Canada, little guidance exists about what discount rate to use. When discount rates rely on high expected investment returns, as is the case at many US public pension plans (McQuillan, 2015), a two-fold problem could emerge: not only could the investment return fall short of the discount rate, but the pension contributions could also be set too low. Moving entirely away from collective defined benefit plans to individual defined contribution schemes will solve some issues, but it would mean giving up all forms of solidarity too. In the present day, contingent pension plans are developed in order to share the risk between sponsors and members better. Obviously, these changes trigger much debate on intergenerational wealth distributions, as well as sustainability aspects (Gros & Sanders, 2019).

Despite the issues related to public pension plans in the developed world, this stands in sharp contrast to a large group of countries that have limited or no retirement provisions in place. In many emerging markets, the standard three-pillar approach to retirement benefits is an ambition at best. One problem is related to the quality of national identity schemes; what is the coverage of such a scheme, and who is eligible for social benefits? Another problem is that a large percentage of people work in the informal sector with no labor contract and irregular income. In emerging markets, this percentage can be up to 80%. However, there are initiatives to fill this gap. The People's Pension Trust in Ghana is an example of a greenfield operation launching a private pension plan with the ambition to introduce this pension solution in other African countries too.

In 2017, Common Wealth, a Toronto-based financial services company focusing on retirement, in cooperation with the World Bank, four Canadian pension funds, and the government of Ontario, issued a report on the Canadian pension model. The aim of the report “The evolution of the Canadian pension model; practical lessons for building world-class pension organizations” was to provide valuable insights for building world-class pension organizations. Interestingly enough, the report mentions pension schemes in emerging markets specifically. The objective of this article is to contrast the findings in the Common Wealth report with the experience of the People's Pension Trust (PPT) in Ghana. A first impression might be that well-established and very large pension funds in Canada would have very little in common with a pension start-up in a developing country like Ghana. And yet, the report suggests differently. The next section of this article will describe the specific characteristics of the Canadian model, which relate to mission, governance, and investment strategies. The following section is a brief introduction to micro-pensions, followed by a mini case study of PPT in Ghana. This mini-case has made use of relevant documentation and personal experiences of one of its founders and the co-author of this article. Subsequently, a comparative analysis of the specific PPT experiences and the Canadian model will be presented. Central in this section is the question of whether the Canadian model can indeed give guidance to pension funds in emerging markets. The article rounds off with conclusions and a suggestion for further research.

Description of the Canadian model

The pension reforms in Ontario in the late eighties are largely considered to be the origin of the Canadian model. Disappointed with the investment results, its ambiguous governance, and lack of sophistication, the provincial government of Ontario initiated a change that impacted the entire Canadian market. An additional and important reason was that the pension liabilities were partly paid out on a pay-as-you-go basis, which was considered unsustainable and was becoming too much of a fiscal burden. The newly created Ontario Teachers Pension Plan (OTPP) is still considered a leading example of the Canadian model. However, just pointing out OTPP would not do justice to the other public pension plans in Canada. The assets under management (AuM) in the Canadian pension market amounts to Can$1.5 trillion; Can$1 trillion is managed by the so-called ‘Maple Eight’ (Bédard-Pagé et al., 2016).

The term Canadian model is somewhat misleading as the public pension plans differ in terms of their mandates, investment strategies, and organizational setup. The model is much more a set of principles related to three aspects: mission, governance, and investments. The mission embedded in the Canadian model is straightforward but of utmost importance. The beneficiaries are at the center of this model; the Canadian model is to deliver retirement security for its plan members, taking into account affordability, sustainability, intergenerational fairness, and risk sharing—all efforts within the Canadian model focus on fulfilling this mission.

Governance can become very complicated as public pension plans deal with multiple stakeholders; it is not a simple member–sponsor relationship. Particularly in the public sector where pensions are an essential part of total compensation, which means unions are eager to be part of the pension discussions. Furthermore, as the government is the sponsor, taxpayers (often via Parliament) like to know how tax revenues are being used. Not just regarding the pension contributions but also in terms of the nature and characteristics of the investment portfolio. Moreover, as most public pension plans offer defined benefits, there is a complex dynamic between active and retired members. Given the many stakeholders, it is easy to have conflicting interests and complicated decision-making processes. The Canadian model prides itself on having established transparent and clear-cut governance. All direct and indirect stakeholders know what their role and responsibilities are, and, perhaps most important, act in a collegial fashion with the best interest of the plan members in mind. This setup requires trust in each ’other’s’ competences and intentions, which in itself requires time and willingness to build relationships. Any form of ambiguity can easily undermine this trust. The pension funds were created by federal or provincial legislation defining the mandate and assigning oversight to the board of directors. These boards are professional boards whose members are selected based on their specific experience and skill sets. They do not represent one of the stakeholders and are accountable to ministers (federal or provincial) with regards to the fund’s risk tolerance, investment policy, and risk management. The pension funds operate at arm’s length, meaning that the sponsor (the federal or provincial government) will not interfere with the pension funds’ operational management or investment activities. The Canadian Office of the Superintendent of Financial Institutions (OSFI) is the regulator of the pension sector, but focuses on the soundness of the pension plan and the protection of its members. The IMF acknowledged this lack of independent investment regulation in its latest financial system stability assessment on Canada (International Monetary Fund, 2019). Given the pension funds’ systemic relevance for Canada, one of the key recommendations was to strengthen the oversight of large public pension funds and increase the transparency of their financial disclosures.

The third aspect of the Canadian model is that Canadian public pension funds are of a significant size and are run as professional investment management organizations; this manifests in internal management and significant allocation to alternative asset classes. The Canadian funds are known for building professional investment teams, bringing significant market insights and investment knowledge. These characteristics are different from other pension funds worldwide. Many pension funds simply do not have the size to build up internal investment capabilities and must rely on external investment managers. But even larger and/or growing pension funds frequently turn to external management, because they cannot compete with commercial asset managers to attract the best talent. The investments in alternative assets consist of absolute return strategies and investment in private assets such as infrastructure, natural resources, direct real estate, and private equity. Although many pension funds globally do have exposures to these alternative assets, the exposure and implementation of these investments differ significantly. The average Canadian fund allocates close to half of the assets under management to alternative assets. As the Canadian model allows for an entrepreneurial approach, so-called investment platforms are in place to directly control the assets the funds own. This way, the Canadian funds work closely with their portfolio companies to create and exploit new business opportunities. Another distinguishing mark is the use of leverage; Canadian funds are regular debt issuers in international capital markets. In many other countries, entrepreneurial investing and the use of leverage are not allowed. But, perhaps the most crucial point of the model is that the combination of internal investment professionals, entrepreneurial flexibility, and patient capital makes the Canadian pension funds a very interesting strategic partner for governments, investment companies, and corporates. This position could very well lead to a significant and lucrative deal flow. Several sources (Ambachtheer, 2017; Beath et al., 2020) claim that the Canadian model has indeed delivered superior returns.

The Common Wealth report (2016) provides the following key lessons learned:

  • collaboration between stakeholders and alignment around the shared interest of serving plan beneficiaries; the singularity of purpose• building of trust, adherence to clear design and management principles and focus on execution
  • strong independent governance
  •  building professional pension organizations takes significant time; access to talent is crucial
  • the ’‘founding’ stage of new or reformed pension organizations requires leadership and vision, including government support
  • highly interrelated success drivers

Micro-pensions: A brief introduction

At present, 177 countries have mandated pension systems. The purpose of these programs has been to smooth out a stream of income and to reduce the incidence of poverty (MacKellar & Horlacher, 2009). On the surface, this looks very promising, but there is no room for complacency.

The most dramatic aging worldwide is projected to take place in low and middle-income countries. Traditional family-based care for the elderly has broken down in many developing countries without adequate formal mechanisms to take its place. For the elderly, inadequate transfers from either formal pension systems or informal family and community transfers can severely reduce their ability to cope with illness or poor nutrition (Worldbank).

“Today, most people, even in the poorest countries, are living longer lives,” says Dr. Margaret Chan, Director-General of the WHO. “But this is not enough. We need to ensure that these extra years are healthy, meaningful, and dignified. Achieving this will not just be good for older people; it will be good for society as a whole” (World Health Organization, 2015). According to the International Labour Organization (Lee, 2018), more than 60% of the world’s employed population is in the informal economy. While two billion people work informally, most of them (93%) are in emerging and developing countries. The majority lack social protection, rights at work, and decent working conditions. They have no pension, and the cost of living as they get older will increase because of medical expenses. Aging is not just a phenomenon in developed countries, but it occurs in developing countries too. Focusing on the establishment of a well-functioning pension sector in developing countries is therefore very impactful. It prevents old-age poverty and reduces the obligation of children to support their parents. This development would allow the younger generations to invest more in their education, and as such in their own and their country’s progress and prosperity.

Three developments make a case for micro-pensions compelling. First, global aging: people live longer, and therefore more provisions are needed. Secondly, global poverty is rising: the growth of the population in developing countries is twice as high as in developed countries. With currently one in nine persons in the world aged 60 years or over, the projection is that this will increase to one in five by 2050 (Guzman et al., 2012). Assuming that 80% will work in the informal economy, 1.6 billion people will need financial support 35 years from now. Furthermore, following high urbanization rates and industrialization, we observe the break-up of the traditional joint family system that provided support to the elderly through solidarity. However, voluntary saving for retirement is challenging. Our future is uncertain and unknown, and thinking about it is not always pleasant. Retirement brings up thoughts about getting old, mortality, poverty, and an overall feeling of uncertainty. While saving for retirement is essential for future well-being, voluntary contribution levels tend to be low across the world. Research has shown that barriers to saving are wide-ranging: transaction costs, lack of information or knowledge, social constraints, lack of trust in the financial system, ill-designed regulation, as well as human tendencies that hinder good decision-making (Karlan et al., 2014). Many people have no bank account because it is not convenient, expensive, and there are high barriers to setting one up. Moreover, they often lack flexible and trusted products.

Despite the strong case for micro-pensions from a macro perspective, building a stable and sustainable business is challenging. The primary source of revenue for a pension trust consists of a fee on the assets under management. However, the savings amounts are low and subject to swings as income is not a given. Moreover, the regulator usually sets limits regarding the fee levels. For example, in Ghana, the maximum fee is 1,33%. Given that the annual operating expenses are approximately $500k, the fund size should be at least $40 million before breaking even. Informal workers save on average less than $50 per year, so it takes many participants and/or years before getting to breakeven. Therefore, it is no surprise that the number of successful initiatives has been limited so far.

Examples of micro-pension initiatives are:

  •  In India, The Dahn Foundation10 started a project collecting premiums via Self Help Groups, followed by APY Micro Pension Scheme by the government with a guaranteed pension and auto-debit contributions.
  •  In Kenya, the MBAO Pension Scheme is a private-sector-run scheme directed at informal workers (promoted by the regulator).
  •  In Rwanda, the government launched a Long-Term Savings Scheme for all Rwandans.
  •  In Nigeria, the government launched a micro-pension scheme in 2019 for informal workers.

It is evident from these examples that support from the government is crucial. Yet, the results are still limited because of the lack of outreach, inadequate technology, lack of awareness, and low financial literacy. Providing a retirement product itself is simply not enough.

Mini case-study: People's Pension Trust Ghana

In Ghana, the majority (90%) of the population has no mandatory pension fund. This segment of the population operates in the informal sector, which is known for irregular and uncertain income, a lack of contractual agreements with employers, and is primarily comprised of self- employed individuals such as farmers, traders, smallscale enterprises, and market vendors. Although the pension system in Ghana allows for this segment to save towards their pension voluntarily, none of the existing pension funds have successfully targeted this segment. The reason is that this segment is difficult to serve as it is largely unorganized, operates as a cash-based economy, is low-income, and challenging to reach. The result is that this segment remains mostly ignored although it represents nearly 10 million people.

People's Pension Trust Ghana (PPT) started after a positive feasibility study in 2014 on the conviction that informal sector workers should have the opportunity to save towards a meaningful pension and avoid old-age poverty. Enviu and a Dutch Foundation, called Stichting Duurzame Micropensioenen in Ontwikkelingslanden (SDMO), supported the feasibility study and the start-up. Enviu is a Dutch company focusing on impactful entrepreneurship11. SDMO focused on micro-pensions, making use of the available pension knowledge in the Netherlands. It was sponsored by the umbrella organizations for the pension and insurance sectors as well as the Dutch government. Ghana was selected based on its favorable regulatory environment, political stability, average income, infrastructure, digital opportunities, safety, and language. In September 2016, PPT received its license to operate as a corporate trustee from the regulator NPRA13, and as the first trustee to target the informal sector specifically. PPT is, as far as we know, the only social company in the world targeting informal workers.

PPT offers a defined contribution, voluntary pension savings product. The product is called ‘Me Daakye’ or ‘My Future’ in the Twi language. Participants save during their active working years, the accumulation phase, for the period of their retirement, the decumulation phase. Pension benefits are paid based on a 20-year annuity (average expected life after age 60 is 16 years14). Me Daakye is a pension product in the third-tier voluntary pension provision. The product is flexible; participants can withdraw up to 50% of nominal contributions at any time. Making a deposit is also flexible and straightforward: in cash, by bank, or via mobile wallet. The Pension Trust distributes the product, collects contributions, administers the pension funds, develops investment strategies, and pays out benefits to retirees.

The governance of PPT is straightforward. PPT’s management team consists of the CEO, Chief Business Development Manager, Operational Manager, Finance Manager, and Communication Manager. The CEO of PPT formally reports to the Board of Trustees and the Shareholder People’s Pension Holding. In general, the Board of Trustees is responsible for strategic direction, establishing goals for management, and monitoring the achievement of these goals. While the Board of Trustees will retain responsibility for the strategic direction and control of the Pension Trust, management is responsible for the day-to-day operation and administration of the Pension Trust.

The Board of Trustees consists of independent individuals who protect the interest of the participants, and are responsible for internal supervision. The NPRA states that a trustee of an occupational pension scheme should have appropriate knowledge and understanding of: 1. the law relating to pensions and trusts, 2. the investment strategies pursued, and 3. be conversant with its scheme-related documents generally. The Board will consist of five board members. A member of the Board of Trustees shall hold office for three years and is eligible for re-appointment. The formal functions of a Trustee are stipulated under the National Pensions Act 766. They include, among other things, scheme registrations, the appointment of the fund manager and custodian, investment policy and risk management, and financial statements. Although the formal regulations are up to standard, the regulator’s engagement in the selection and supervision of the Board of trustees has been limited to non-existent. The current Board of Trustees of PPT consists of well-known people with a good reputation, but - with one exception - lacking the knowledge and experience as required.

As said, the formal responsibility for the investment policy lies with the Board of Trustees of PPT, but has delegated the authority to execute the investment policy to the Investment Committee. The Investment Committee (I.C.) consists of 5 members holding monthly meetings to discuss the investment strategy and portfolio of PPT. Three (external) members are foreign investment experts with extensive experience in investments. PPT offers no differentiation in savings products in the accumulation phase; all participants join the same investment pool. Compared to alternative savings methods, such as through banks or savings groups, PPT provides a higher interest rate at lower costs. The average interest over the past three years has been over 18%. After expenses and inflation, the real rate of return is around 8%. We estimate that the contribution via PPT leads to a 55% higher value than similar products offered by savings groups, and even two and half times more value than bank products. Based on the managerselection experience in the Netherlands of one of its founders, PPT selected Databank as their external asset manager. The investment strategy consists primarily of local fixed income investments as the local regulator, NPRA, put strict asset-allocation guidelines in place. Moreover, the external asset manager has to be a local manager, which is also true regarding the custodian. Based on a similar selection process as the asset manager, Standard Chartered bank was selected as the custodian.

As mentioned, PPT’s retirement product is not mandatory, which means that individuals need to be convinced of the benefits of retirement savings. Through education sessions, PPT explains the need to save for later, and technical concepts such as compounding interest, inflation, and benefits. Moreover, the structure and flexibility of the pension product need to be explained carefully to overcome the practical and behavioral barriers. For example, the possibility to withdraw money is an interesting feature, but it does interfere with a steady build-up of retirement money. A network of sales agents is in charge of education, signing up customers, and collecting contributions. This team consists of people with academic degrees, who receive additional internal training. PPT also leverages partnerships like unions, telco’s, cocoa organizations, and others to increase outreach into the informal sector through distribution agreements. PPT has been very active in using research and behavioral methodologies to help people to save and think long-term. In 2018 SCAP/WorldBank sponsored one of PPT’s projects on the impact of behavioral interventions.

PPT currently has 45,000 customers and administers 100,000 savings transactions per year. Although this is already a large number, the growth has been lower than expected given the total market size. The development of partnerships with large organizations (telco’s, banks, unions, cocoa organizations) has taken much longer than foreseen, and selling pensions is a ‘high touch’ business. It requires several face-to-face contacts before prospected customers sign up. Moreover, although most people have a mobile wallet, digital payments to service providers are less common in Ghana, resulting in a high volume of cash payments. On the positive side, PPT has a strong reputation and brand name in Ghana. The company has won many (inter)national awards and appeared in several television programs about aging/saving. The reputation of being a reliable partner is crucial to building the trust needed to move customers to digital payments.

Two worlds coming together?

The Common Wealth report talks about the relevance of the Canadian model for pension organizations in emerging markets. In the previous sections, we discussed the Canadian model and the People's Pension Trust in Ghana. In table 1, we set out the main differences between the two models.

Perhaps the three most important differences are the pension design, sponsor, and business model. Since the start of the Canadian model thirty years ago, it has benefited from the constant inflow in terms of contributions. By design, this is a mandatory contribution, fully supported by the Canadian government, and has led to the Can$1 billion AuM the ‘Maple-eight’ are managing today. The situation for the People's Pension Trust is very different. New participants need to be identified, educated, and convinced first before they sign up. This is far from a trivial task, as the target group does not necessarily think about long-term savings at all. As their income is uncertain and fluctuating, and meeting present-day needs takes priority over retirement income. Withdrawals are possible during the accumulation phase, which means more uncertainty around retirement benefits. The government in Ghana is likely to be supportive as it will create more economic stability, but there is no direct involvement.

The difference in the business model is essential too. The agency model means that the Canadian pension funds have been set up to operationalize the investment management activities of the pension plans. Some funds are single-sponsor entities, and others work for multiple sponsors. But, effectively, there is no competition among the pension funds, and they are non-profit organizations. The pension plans cover the costs of running the pension funds. People's Pension Trust, on the other hand, is based on a commercial business model but without a profit target. It prides itself on being a social company. The intention is not to pay out dividends and/or enrich its shareholders, but to work in the best benefit of its members. Nevertheless, in order for the model to be sustainable, its fee income must cover the operational expenses.

Given the fundamental differences between the two models, the question remains what People's Pension Trust could learn from the Canadian model, as the Common Wealth’s report suggests. We will discuss each key lesson learned separately.

  • The singularity of purpose. The multiple stakeholders in the Canadian model collaborate with the interests of the members as their overall objective; they subordinate their own specific interests. The experience with People Pension Trust is the same. As a social company and pension trust, the interest of the participants is leading. The main objective is to reduce old-age poverty and have a meaningful and dignified retirement. PPT’s shareholders, trustees, and employees feel strongly about this objective.
  • Strong independent governance. Clear roles and responsibilities support the singularity of purpose. Moreover, the people involved are selected based on their experience and skills. The formal governance around the People's Pension Trust is transparent in terms of structure, roles, and responsibilities. The main challenge lies in the execution and monitoring. An example is the appointment of professional people. People's Pension Trust has a Board of Trustees with influential people but who were not selected based on skills or experience. This worked well in the initial phase of PPT as the Board of Trustees helped to gain trust in PPT and heightening awareness. But going forward, it would be good to reconsider the selection process of new members n the Board of Trustees and a more active role by the regulator. The Board has left the day-to-day responsibility to its experienced management team. The lack of professional knowledge has been mitigated by implementing best practices from the Dutch pension system and by creating an investment committee and advisory Board with (external) professionals. Although this functions well in combination with robust regulatory control, this is not considered a structural solution.
  • Long-term horizon to build the organization and access to investment talent. The Canadian model receives much praise, but it has taken three decades to reach its current status. It is doubtful whether the People's Pension Trust can afford to take the same amount of time as it relies on a business model rather than an agency model. In that respect, the feasibility study explicitly focused on the minimum number of participants required to make People's Pension Trust a viable proposition. Related to this point is access to investment talent. At this point, it is unreasonable to think that People's Pension Trust can build up an internal investment team, let alone teams that specialize in private market investments. The approach taken is to adopt an outsourced CIO model; the relationship with Databank as fiduciary manager is long-term focused with an emphasis on cooperation and low costs.
  • Leadership and vision, including government support. A group of dedicated and experienced pension professionals came up with the idea to establish People's Pension Trust. The local CEO was born in Ghana, but was trained and worked for many years in the Netherlands before he moved back to Ghana to help build up the country. As discussed, People's Pension Trust is not governmentsponsored. Going forward, the government of Ghana could play an essential role in terms of supporting public-private initiatives to create sustainable retirement solutions and/or introduce mandatory savings schemes as seen in countries as Rwanda and Nigeria.
  • Interrelated success drivers. The Canadian model relies heavily on a solid triangle with mission, governance, and investments as its three spearheads. People's Pension Trust has all three spearheads in place too, yet its track record is only four years old. It needs more time to come to the same balance and interrelated functions as found in the Canadian model.

Conclusions / Recommendations

The first thing that comes to mind when discussing the Canadian model is the investment approach. Short-term, there is very little that those developing new pension plans in emerging markets can learn from this: scale is too limited, local investment regulations are too strict, and access to investment talent is rare and costly. Nevertheless, as table 2 suggests, the Ghanaian model could benefit as of today from the introduction of Canadian best practices concerning governance:

The developments in Ghana seem to follow similar patterns as the Canadian one went through many decades ago. In order for pension plans in Africa to develop more rapidly, different forms of cooperation can be developed as the Common Wealth report suggests as well: exchange programs, secondments, training, advisory roles, and joint projects. Moreover, combining networks in terms of government relationships, development banks, and other relevant institutions could prove to be very powerful. The direct impact of these forms of cooperation could be very significant.

A final thought is the following: what could the Canadian model learn from PPT’s experience in Ghana? After all, the Canadian model itself is facing several challenges: relatively high costs, longevity risk, and a low-yielding investment environment with potentially more regulation to protect its members. When the development of contingent pension plans and/or more individualism continues, pension plans/funds must educate members. One of the problems is that financial literacy among the members is low. Certainly, this is not just an African phenomenon; it is real for developed countries as well. The experience PPT has built up about savings behavior is equally applicable to western countries. A joint research platform focusing on long-term savings behavior could benefit the Canadian model and would be an exciting first step for Canadian and African funds to collaborate.

This is an excellent paper from Gerard Bergsma and Eduard van Gelderen.

It is packed with great insights and extremely well written even if it is academic in nature (it's not esoteric, it offers a lot of practical insights).

Let me give you some quick thoughts without sounding pretentious or arrogant:

  • The Canadian model is widely held as the global gold standard for pensions. As the authors state,  it relies heavily on a solid triangle with mission, governance, and investments as its three spearheads.
  • In most cases (but not all), there is an independent qualified board of directors nominated by federal and provincial finance ministers  who oversee executives at pensions in charge of the day-to-day operations of the pension. Operating at arm's length from the government is crucial to ensure the long-term success of these pensions.
  • On top of this governance, Canada's large pensions are run like conglomerates with many business lines. The focus is squarely on maximizing returns without taking undue risks. The majority of the assets are managed in-house but they do use partnerships to scale their activities in private markets (mix of fund investments and co-investments to reduce fee drag).
  • In short, Canada's large defined-benefit pensions are the best in the world but our retirement system isn't because we fail to cover all Canadians adequately.
  • The paper also discusses the lack of a comprehensive pensions regulator in Canada although there are several regulators (OSFI, Auditor General of Canada and provincial auditor generals, etc.) which are involved in regulating our large pensions.
  • The biggest drawbacks I see in the People's Pension Trust in Ghana (PPT) is that it's a defined contribution plan (too reliant on public markets) and it's based on voluntary savings (not mandatory and you can take money out of it if needed). 
  • I do like how Eduard and Gerard end their paper by stating what the Canadian model could learn from the PPT's experience, paying particular focus on financial literacy. This is a huge problem I often run into when discussing pensions with people but it's more than just pensions, there are a lot of things going on in markets that I'd love to educate people on (and every day, I'm learning something new).

Anyway, it's Friday, I typically cover markets but I want to take a week off and thought this paper is an excellent way to end the week.

I will leave you with two tweets on Fed policy and inflation:

Leave it to Rosie to tell it like it is, there's no (real) wage inflation!!

And the debts keep piling on:

More debt, less real wages, doesn't exactly sound inflationary to me but maybe the Fed will follow the Bank of England and start raising rates. Maybe, I am not convinced.

Lastly, this story caught my attention:

If you want to understand what's wrong with the governance at US public pensions, just read it.

Below, Howard Marks, co-founder and co-chairman of Oaktree Capital, weighs in on the state of the credit market during an interview with Bloomberg's Erik Schatzker on "Bloomberg Markets" stating we are in an "everything bubble". 

Indeed, we are, that's good news for asset owners as long as it lasts.

Please note I'm taking a week off but will be around so email me if you need anything.