Canadians still concerned about their pension plans

According to the latest National Bank Retirement Index survey, Canadians are concerned as the situation of defined benefit pension plans shows no improvement.

The financing of private and government pension plans is one of Canadians’ main concerns. And although the 2011 numbers of the National Bank Retirement Index poll are higher than those in 2010, they do not erase the uncertainty about retirement planning in Canada. On a scale of 1 to 10, respondents delivered a global score of 5.9 in December 2011 vs. 5.4 a year earlier. Confidence in private and government pension plans (5.5 and 5.1 respectively) was once again among the lowest results of the survey.

Additional contributions

An index that depends on the economic situation. Not long ago, Towers Watson disclosed the poor health of defined benefit pension plans, blaming the under-performance of the stock market and low interest rates. Based on the published numbers, only 72% of their benefits were covered at year-end 2011, vs. 86% at the start of the year. To arrive at these results, the firm used a notional portfolio composed of 60% shares and 40% bonds, which yielded only 0.5% in 2011. This low profitability represents a cost for companies required to observe their engagements to these plans. In some cases, both employers and employees had to make additional contributions to make up for the shortfalls. Accordingly, managers of these types of plans are considering new, more stable sources of yield, including real estate and infrastructure to reduce the level of risk.

In the U.S.

Nevertheless, according to another study published by BMO Financial Group, the situation seems less alarming in Canada than the U.S. For instance, 71% of Canadians are worried about the performance of their pension plan, vs. close to 90% of Americans. The survey also revealed that almost 60% of Canadians have confidence in their ability to save for the lifestyle they want after retirement, while less than 40% of Americans think they will succeed in doing so. Accordingly, half of Canadians and Americans say they will or may have to postpone their retirement or work part time during retirement to make up for insufficient savings.