Almost nine out of 10 (89%) of defined benefit plan sponsors believe that Canada’s pension system is either poorly positioned or average when it comes to Canada’s future pension prospects, according to a survey conducted by RBC Dexia to gauge the opinions of Canada’s defined benefit pension plan sponsors on key issues in the pension industry.
In October 2009, RBC Dexia Investor Services surveyed 370 Canadian pension plan sponsors, with pension plan assets ranging from less than C$100m to over C$1bn.
“Whether due to recent market volatility or a lack of a unity from federal and provincial regulators, it is evident that defined benefit plan sponsors are finding it difficult to be optimistic about their ability to meet future pension obligations,” said Scott MacDonald, head, pensions, financial institutions and client service for RBC Dexia. “The respondents to our survey frequently suggested the need for all stakeholders to work more closely together to help alleviate the current strain on the pension system.”
Reasonable returns key to stability
Although 41% of respondents cite investment risk as the type of risk they are most concerned with, shortfall risk (the risk of pensions not generating sufficient returns to offset obligations) ranks a close second, at 36%. This reflects the natural correlation between both risk factors – where negative or reduced investment returns dramatically influence plan shortfalls.
Operational risk, selected by 8% of respondents as their primary risk factor, appears to be less of a concern among sponsors, relative to investment and shortfall risk. With increased focus and awareness on achieving operational efficiencies, coupled with close management of expenses and transparent governance practices, pension plans appear confident in their ability to mitigate this risk variable.
New year, same challenges
To understand what might be adding to the pessimism among plan sponsors, the survey asked respondents to indentify their single biggest challenge in 2010. Almost half, 48% indicated that their main focus will be on aligning future liabilities with assets, while 38% said they expected low returns to continue to be a significant challenge. Seven per cent of respondents believe the introduction of a new style of pension plan accounting standards (International Financial Reporting Standards) will be their biggest challenge in 2010, while 4% believe it to be understanding new instruments and alternative investments.
Canadian system still preferred
While plan sponsors were generally pessimistic about the current Canadian pension system, the survey revealed that 72% of respondents rank Canada’s pension system as equal to, or better than other systems globally. Only 8% of respondents consider the Canadian system to be inferior to its global counterparts.
Urgent need for change
The recent financial turmoil has highlighted the urgent need for change to ensure that Canada’s pension system meets the future requirements of pensioners. While there are diverging views on what needs to be done, the RBC Dexia survey reveals that open dialogue among the various stakeholders is an essential first step. Each constituent, whether it is employees, retirees or plan sponsors have a vested interest in working towards the development of a balanced and meaningful approach towards Canada’s retirement needs.
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