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Overview of Canadian Retirement Income System

Overview of Canadian Retirement Income System. Don Walcot, CFA. March 15, 2001 Santiago, Chile. CANADIAN RETIREMENT INCOME PROGRAMS. INCOME SUPPLEMENT PROGRAMS. Minimum income guarantees Paid out of general government revenues

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Overview of Canadian Retirement Income System

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  1. Overview of Canadian Retirement Income System Don Walcot, CFA March 15, 2001 Santiago, Chile

  2. CANADIANRETIREMENT INCOME PROGRAMS

  3. INCOME SUPPLEMENT PROGRAMS • Minimum income guarantees • Paid out of general government revenues • Old Age Security (OAS) and Guaranteed Income Supplement (GIS) are key federal programs • Maximum benefits for lower income Canadians

  4. CANADA PENSION PLAN • Mandatory, government sponsored DB plan • “Pay as you go” economics, with partial funding • Maximum benefit is 25% of “average industrial wage” • Premiums are 9.9% of “pensionable” earnings - i.e. earnings up to the average wage • Arms length investment board to invest surplus funds in capital markets

  5. CPP PROJECTED TOTAL ASSETS 2001- 2020 $ Billions Source: Office of Superintendent of Financial Institutions, Chief Actuary

  6. PUBLIC PENSIONS - BENEFITS % of earnings replaced by OAS, GIS and CPP in 2000 70 per cent Pre-retirement earnings ($) Source: Department of Finance

  7. REGISTERED PENSION PLANS • Largest component of retirement system • Employee coverage is declining gradually - 41% of paid workers were members of pension plans in 1998 • 85% of members and 95% of assets in DB plans • DC plans are smaller, but becoming more popular • Public sector multi-employer plans are the largest

  8. CONTRIBUTIONS Employees: 5%-10% of earnings most common Non-contributory for 27% of plan members Employer: “Balance of cost” contribution most common BENEFITS 1.5% - 2% of “final” earnings per year most common Some automatic inflation protection for about 50% of DB plan members Benefit linkage to CPP is common COMMON TERMSDEFINED BENEFIT PLANS

  9. TOTAL TRUSTEED PENSION PLAN ASSETS1985 - 2000 $ Billions Source: Statistics Canada

  10. REGISTERED RETIREMENT SAVINGS PLANS • Individual DC plans • Fewer total assets than pension plans but growing more quickly • Taxes on contributions and income deferred until withdrawal • Wide variety of eligible investment vehicles

  11. DISTRIBUTION OF CONTRIBUTIONS AND ASSETS CONTRIBUTIONS ASSETS RPP 69% RRSP 26% $16.9b $241b $26.6b $644b $49b CPP 5% $18.5b 1998 1998 Source: Statistics Canada

  12. DISTRIBUTION OF PAYMENTS CPP 17% CPP 25% RPP & RRSP 31% RPP & RRSP 51% $4.6b $23.5b $8.4b $46.5b $14.2b $22.4b OAS/GIS 52% OAS/GIS 24% 1978 1998 Source: Department of Finance

  13. CONCLUDING POINTS While Canadian system faces challenges: • Public has confidence in pension industry • “Market-based” investment predominates • No fundamental fixes appear necessary

  14. Overview of Canadian Retirement Income System Don Walcot, CFA March 15, 2001 Santiago, Chile

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