How well is the Canadian retirement income system performing and which global peers are doing it better?
How well does Canada’s retirement income system rank against global peers?
The good news is that it ranks 13th among 44 that have been assessed in the latest Mercer CFA Institute Global Pension Index - representing 65% of the world’s population - and that it maintains a ‘B’ rating.
The bad news is that as more employers shift from defined benefit to defined contribution plans, retirees will take on greater financial risks.
“While Canada’s retirement system continues to rank well globally, there are risks that employers and employees need to manage in the current environment,” said F. Hubert Tremblay, principal and senior wealth advisor with Mercer Canada. “As DC pension plans continue to make up a-greater part of Canadians retirement, turbulent markets, soaring inflation and a higher cost of living are all impacting older workers that are transitioning to full or part-time retirement.”
Tremblay added that employers can help their teams prepare for retirement by providing and promoting financial wellness tools at all stages of their careers.
“The retirement industry also needs to support workers transitioning into retirement by providing good options to convert accumulated assets into retirement income, low investment fees, and helping future retirees understand how the Canada/Québec Pension Plans can be leveraged to deal with investment and longevity risks,” he said.
Who ranks number one?
While the Canadian system is stable and among the top third of the systems ranked, it is beaten by 12 countries including Australia, the UK, Norway, Israel, and Uruguay.
However, it ranks above many other large economies including Germany, Japan, and the US.
Canada’s index value increased slightly in Mercer’s latest index, from 69.8 in 2021 to 70.6 in 2022.
A recent report from Natixis IM revealed that Canada is no longer a top 10 country to retire to.
Michael Thom, CFA, managing director of CFA Societies Canada, recognizes the quality of Canada’s retirement savings system but also the opportunity to collaborate for continued progress.
“Canada has had a respectable rating since the inception of the Mercer CFA Institute Global Pension Index and has much to be proud of across the Canadian investment management and pension ecosystem,” he said. “But challenges remain given inflation, increasing interest rates, and financial market volatility.”
Thom says that Canadian investors, investment advisors, pension fund managers, and government policymakers should be looking for cost effective, accessible, and reliable retirement savings solutions.
“For current or prospective retirees, longevity risk and an escalating cost of living are critical near-term concerns for those receiving or facing fixed retirement income,” he added.
Iceland comes out top overall in Mercer’s index with a score of 84.7, driven by top scores in the adequacy and sustainability sub-indexes, while Finland took the top ranking for integrity.
Completing the top 5 overall are the Netherlands, Denmark, Israel, and Finland. Thailand had the lowest index value (41.7).
Retirement in uncertain times
Senior partner at Mercer and lead author of the study, Dr. David Knox, said that these times of uncertainty bolster the importance of strong retirement income systems.
“Individuals have been assuming more responsibility for their retirement savings for some time; amidst high levels of inflation, rising interest rates and greater uncertainty about economic conditions, they are doing so in an increasingly complex and volatile environment,” he said. “And while the necessary reforms may take time and careful consideration, policymakers must do all they can to ensure retirement schemes are supported, developed and well-regulated.”
The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.
