Finance

Pension Envy

Ontario teachers have the world’s best-performing retirement fund. Is it a model for the rest of us?

From the September 2013 magazine
Illustration by Kyle Metcalf

Retirement came as a surprise—a pleasant surprise,” muses Vic Genova as he moves around the kitchen of his rambling Toronto home one chilly evening, preparing chai. “I knew it was coming, but I didn’t think about it.” He was having lunch in his school’s staff room one day when a colleague mentioned, almost in passing, that he would soon be eligible to start collecting his retirement savings, which are invested, managed, and disbursed by the mighty Ontario Teachers’ Pension Plan (OTPP), currently ranked the world’s best-performing retirement fund.

“I wrote down the numbers,” says Vic with a chuckle, “and I remembered the line from The Godfather: it was too good to refuse.” As he and his wife, Linda, also a former teacher, set out the tea and a plate of almond biscotti on their dining-room table, they explain how, according to the terms of their contracts, they could start drawing pensions at fifty-five and fifty-six, respectively, when they attained the magic “eighty-five factor,” a formula based on age plus years of service.

In exchange for a mandatory contribution of 12 percent of each paycheque, the average retired teacher in Ontario receives an annuity of $48,000, based in part on an average of the best five earning years. Members of the profession are doubly fortunate because their pension plan has been famously profitable, averaging 10 percent annual returns over the past twenty-three years. Almost a decade after he left his career as a special ed teacher, Vic is both energetic and fit, blessed with knees that allow him to continue playing hockey and tennis. “We got lucky,” he says with a shrug.

The Genovas, and some 300,000 other current and former Ontario teachers, appear to exist in a parallel economic universe. The number of Canadian employees who belong to defined benefit pension plans, which provide recipients with a guaranteed annuity upon retirement, has plunged in the past fifteen years, and it now stands at just under 4.5 million people. Millions of Canadian baby boomers outside the teaching profession and not part of another defined benefit plan have not saved nearly enough in their RSPs to retire with an annual income of 60 percent of their working salaries, the minimum considered necessary for the middle class to maintain a pre-retirement standard of living. Incentives to save, such as tax shelters, have done little to mitigate this growing problem. As a result, this cohort faces the very real risk of an impoverished old age that will inflict extreme fiscal pressures on social programs and health care while starving other public services. Those without decent pensions will have little choice but to keep working if they want to avoid poverty.

Linda sounds a little defensive about their good fortune, stressing that earlier generations of teachers, many of them single women, ended up as paupers. “The fact that I am part of a large group that has a well-managed pension, benefiting from economies of scale, is no reason to feel guilty,” she says. “I feel that I earned my pension.”

Not everyone agrees. If one common denominator exists in North American politics in the anxious post-2008 era, it may well be pension envy. In the private sector, employers have cut back on membership in defined benefit plans, in a bid to reduce labour costs and increase profit margins. Meanwhile, in jurisdiction after jurisdiction, right-of-centre politicians have taken aim at allegedly gold-plated government pensions that they consider unaffordable as well as unfair. With sentiment against public sector unions rising, many voters want to know why they must pay part of their earnings to furnish civil servants with retirement benefits they have no hope of securing in their own jobs. But the politics of pension envy overshadows another question: why can’t every Canadian have access to a pension that provides a measure of security after a long career?

Much of OTPP’s success since it was founded in 1990 can be attributed to smart management and financial acumen rather than government contributions, which have accounted for just 12 percent of its funding. Jim Leech, the rangy, plain-spoken former Bay Street deal maker who has run the sprawling $129.5-billion organization since 2007, points out that during the plan’s twenty-three-year history 77 percent of its asset growth—about $99.7 billion—has come from consistently impressive returns on its investments. “That’s phenomenal leverage you won’t get from your classic defined benefit plan,” he adds. (He retires at the end of this year.)

The OTPP’s immense portfolio dwarfs those of even the largest Canadian mutual funds. (By comparison, the Royal Bank’s well-regarded Canadian Equity Income Fund has just under $2.6 billion in assets.) Due to the combination of OTPP’s size and its investing prowess, its batting record is unrivalled worldwide, as The Economist has pointed out. “Over the past ten years,” the magazine reported in a March 3, 2012, article about the success of Canada’s large public sector pension plans, “Ontario Teachers’ has had the highest total returns of the biggest 330 public and private pension funds in the world.”

Those returns are also exceptionally robust because OTPP’s not-for-profit operation consumes just one-half of 1 percent (fifty basis points) of its assets per year, even with a staff of 900 headquartered in a nondescript office building in Toronto’s north end. Most large mutual fund companies—the ones that compete for Canadians’ RSP dollars—levy management fees that often average 2 percent, much of it for profit and bonuses. Such charges can swallow up half of an investment’s value over an employee’s career.

While OTPP is the most profitable Canadian public sector pension fund, it is not the only one attracting international attention. The Economist notes that four of the world’s top forty pension funds are now Canadian, and all have been structured according to the groundbreaking governance principles that underlie OTPP’s success. “It’s a made-in-Canada revolution being copied in many places outside Canada,” says Keith Ambachtsheer, a pension expert with the University of Toronto’s Rotman School of Management.

But what if OTPP’s model provided a solution to Canada’s looming savings crisis? What if we were all required to contribute to large non-profit pension funds with the size and savvy to deliver returns seldom offered by private mutual funds? The operative word is “required.” Unlike the rest of us, Ontario teachers can’t sell their stocks in a panic when the markets cough. They can’t raid their RSPs to finance an amazing sun holiday. And they don’t have to decide whether or not to believe the enticing sales pitch in the mutual fund brochure that comes in the mail. Rather, teachers outsource these tricky long-term investment choices to the OTPP’s pros, with the proviso that they may not touch the cash.

Although the prospect of a universal mandatory pension plan is anathema to the prevailing liberal ethic of individual freedom—and in particular to the Harper government, which has rejected the idea on philosophical grounds—a growing number of provincial officials, pension experts, and advocacy groups say it may well be the only way out of penury for a generation of Canadians.

“We don’t believe you’ll solve the problems of that group unless you do make contributing mandatory, because none of the other incentives have worked,” observes Leech, who believes that within a decade a federal election will be fought specifically over the issue of retirement security. In October, he will publish The Third Rail, co-written with the Globe and Mail’s Jacquie McNish, which lays out his vision for reforming a system that is, in his view, clearly broken: “What will happen in twenty-five years when millions of Canadians open the box and see there’s not much in there? ”

To trace the roots of Canada’s pension revolution, we must travel back to Detroit in the early ’40s, when a young Austrian-born academic named Peter F. Drucker was studying organizational practices at General Motors. From his experiences at GM and later as a corporate consultant, he created a humanistic philosophy of management and customer service. His work represented a sharp departure from the paleolithic pre-war capitalism of Henry Ford. Drucker was especially interested in the pension plan established by GM president Charles Wilson for his workers. (Ironically, the United Auto Workers opposed the proposal at first, fearing the company would misuse the workers’ contributions.) The prolific author later wrote a little-read volume, The Unseen Revolution: How Pension Fund Socialism Came to America, which laid the groundwork for pensions that answered to their sponsors, survived demographic shifts, and delivered long-term benefits.

The Unseen Revolution fell into Keith Ambachtsheer’s hands in 1977, a year after it was published. He now runs an international pension fund management think tank at U of T and heads a small but well-respected consulting firm. At seventy-one, he knows more about pension plans than almost anyone else in Canada. If you collect a public sector pension or CPP, you owe him big time. You also owe Drucker.

“I was one of the few people who read the book,” he recalls, eyes twinkling. Drucker, he adds, “asked all the important questions.” Over lunch at a Yorkville pub, the silver-haired, nattily dressed consultant recalls how he became an adviser to David Peterson’s Ontario Liberal government in 1987, soon after it won a general election. As the leader of the first non-Tory majority in over two generations, Peterson came into office taking aim at his predecessor’s budget deficit. He knew Bill Davis’s Tories had been using teachers’ pension contributions—which flowed into a sleepy provincial Crown agency that managed the Teachers’ Superannuation Fund—to fuel spending, by decreeing that those payroll deductions be invested in government bonds. “It was like catnip,” Peterson recounts in a phone interview. “There was no incentive to balance the budget.”

His treasurer, Robert Nixon, was charged with forming a task force to fix the situation, and the bureaucrats involved turned to Ambachtsheer to solve the problem. The next year, the task force released a blueprint, pointedly titled “In Whose Interest,” for reforming the teachers’ pension plan. Ambachtsheer made sure the recommendations reflected two of Drucker’s key insights: one, that the pension fund should answer to an independent and highly qualified board of directors with a fiduciary responsibility to the plans’ sponsors (the government and the teachers); and two, that the board should be allowed to recruit talented investment managers with competitive (i.e., Bay Street) pay packets rather than bureaucrats’ salaries. Last, the Liberals decided the new organization should be allowed to invest on the open market, a radical notion at the time.

The revamped organization, which inherited a $20-billion reserve of Ontario government bonds, would be overseen by an independent OTPP board that included the recently retired Bank of Canada governor, Gerald Bouey. He in turn recruited its first powerhouse executives: former MetLife Canada CEO Claude Lamoureux; and Bob Bertram, a long-time financial executive with the Alberta phone company that later became Telus. Lamoureux insisted that they set up offices in the north end of Toronto, where they could remain at a polite remove from the city’s financial hub, to avoid undue influence from Bay Street.

Luck played a part in the fund’s early successes: OTPP’s inception coincided with a devastating collapse in Canada’s commercial real estate market, and Lamoureux’s team began snapping up cash-strapped malls, office buildings, and a major real estate firm, Cadillac Fairview. The small crew then began buying up blocks of shares in publicly traded companies, using the Warren Buffett value investing model, says OTPP veteran Wayne Kozun, who oversees the plan’s equities investing team. From there, it diversified into international markets. “We realized that limiting our investments to Canada would make Teachers’ a very big fish in a very small pond,” he says.

After Leech joined in 2001, OTPP began playing aggressively in the so-called private equity field, meaning it would buy large stakes in large companies whose shares did not trade on any stock market. He orchestrated a handful of high-profile deals that saw Teachers’ pair up with American buyout giants such as Kohlberg Kravis Roberts to take multi-billion-dollar positions in companies like Shoppers Drug Mart and Yellow Pages; both investments paid off handsomely.

Over the past decade, as the average age of its members began to creep up, Leech and his executives started to play more cautiously, with more sedate revenue-generating holdings: toll roads, electrical utilities, and retirement homes—investments that generate predictable flows of income to support the looming wave of retirees who have been guaranteed pensions for the rest of their days.

Leech’s team, of course, is not infallible. In 2007, OTPP and two American firms made a bid to acquire BCE in a $35-billion blockbuster deal. By a stroke of cosmic luck, a Quebec court blocked the overpriced sale, a twist of fate that helped to blunt the savage impact of the 2008 credit collapse on Teachers’ holdings. “We were reminded that investments don’t just go up,” he says.

To help limit its exposure to companies with reckless executives, OTPP also became an activist shareholder, using its clout to push CEOs to manage their organizations more profitably. Lamoureux, and then later Leech, believed in urging such companies to address unsound governance practices, such as boards stacked with cronies who would not challenge the CEO. About a decade ago, Teachers’ further upped the ante by co-founding the Canadian Coalition for Good Governance, whose members include all of the big Canadian public pension plans as well as several large private sector fund companies. CCGG pressures directors and CEOs of publicly traded firms to improve their practices or face ouster, as happened recently when Teachers’ backed the overthrow of Canadian Pacific’s board in May 2012.

Despite its high-profile activism, OTPP has never allowed social or political considerations to infiltrate its investment choices. Unlike Quebec’s Caisse de dépôt, a public sector pension plan that has invested in many of the province’s massive infrastructure projects, Teachers’ has resisted government entreaties to become involved in such deals. It also turned a deaf ear on years of complaints from disaffected Leafs fans, who accused OTPP of being more interested in maximizing its profits than in fielding a winning team. (Teachers’ recently sold its stake in Maple Leaf Sports and Entertainment for an astonishing $1.32 billion.)

Nor have Leech and company paid much attention to more specific criticisms, for example those levelled by U of T’s Citizen Lab, which has publicly urged OTPP to use its stake in the American firm Blue Coat to press the organization to be more transparent about its human rights compliance record. Blue Coat makes communications equipment that has been used by repressive Middle Eastern regimes to suppress opposition groups. Earlier this year, OTPP endured another wave of controversy when Cadillac Fairview, its property arm, struck up a partnership with MGM Resorts International (a money-losing gaming giant with suspected ties to organized crime figures in Macau), in an ultimately unsuccessful bid to develop a casino in Toronto.

Teachers, an outspoken lot, can have strong views about these matters. Vic and Linda Genova sometimes hear about such investments, and they wish OTPP would avoid the ones with a taint. Because of Drucker, Ambachtsheer, and Lamoureux, the organization has long succeeded in politely ignoring its membership’s political views. So far, this studied disinterest has worked to the members’ benefit.

For all of its financial acumen, the Ontario Teachers’ Pension Plan, like the rest of Canadian society, has not been immune to the demographic squeeze play inflicted by the aging baby boomer generation. In a country with more seniors and a low birth rate, fewer working Canadians must support a growing population of retired people.

Without question, the same math applies to OTPP. For much of the past decade, Teachers’ has technically been in the red, because the amount of money going out, in the form of payments to retirees, has exceeded the volume of payroll contributions coming in from the dwindling ranks of active teachers.

The reason behind this shortfall has nothing to do with investing savvy. As the average age of Ontario’s teachers has risen along with that of everyone else in the postwar generation, the number of dues-paying members has plummeted, while the roster of those receiving benefits (like Vic and Linda Genova) has pushed steadily upward. In 1970, says Leech, the proportion was ten to one; today it is just 1.5 to one. In other words, fewer and fewer teachers are being called upon to support more and more pensioners.

For many teachers, the duration of their retirement exceeds the span of their careers, an actuarial anomaly no one expected in 1990 when the plan was established and which has added billions in costs. The twenty-five-year-old who starts teaching this fall and retires in 2045 may still be collecting a pension cheque in 2085.

OTPP first came face to face with the longevity dilemma back in 2007, when its executives commissioned a detailed actuarial study of members’ health and lifespans; because its predecessor, the Teachers’ Superannuation Fund, was founded in 1917, they had excellent data on generations of educators. The organization hired Robert Brown, director of the University of Waterloo’s Institute of Insurance and Pension Research, to crunch the numbers. His findings were startling: teachers were living far longer than the average Canadian pensioner. In practical terms, this meant OTPP’s sponsors had to come up with a way of adding $6 billion to its war chest and ensuring that it could continue sending pension cheques to all of those octogenarians.

Leech itemizes the reasons for the members’ robustness. Teachers smoke less, because cigarettes were first banished from staff rooms in the ’60s, long before the ban reached many other workplaces. They are on their feet for much of the day, so they tend to be healthier. Many are familiar with good nutrition habits, due to curriculum content. Then comes the clincher: teachers are also healthier because they experience less anxiety about . . . retirement.

“If you have a secure pension plan, it’s almost a self-fulfilling prophecy,” Leech says. In a follow-up report, moreover, Brown drove home his point about the relationship between health, longevity, and income security. “Long-term income is a better predictor of health than current income,” he wrote. “In this regard, the very significant pensions that teachers have (and their cost-of-living adjustments) are an important reason for their enhanced life expectancy.”

In an earlier work on health care spending, he had already delivered this bombshell in a policy aside: “Income and income security could be more important to the life expectancy of a nation than traditional health care delivery. In fact,” he argued, “if social security income programs were eroded so as to find more money for the funding of health care, the life expectancy of the affected population could go down.”

To critics of public sector pensions, he is in effect saying that the government’s upfront contribution to these retirement savings plans pays for itself in the long run because the beneficiaries consume fewer health care dollars later in life.

Others reframe his point by focusing on the dearth of retirement security for a growing number of Canadians who do not have access to such plans. “The absence of pensions for many private sector employees will have extensive long-term consequences,” warns former York University president Harry Arthurs, a law professor who led a major review of Ontario’s pension policies from 2006 to 2008. “Rather than saying we should get rid of public defined benefit plans, we should be looking at ways to restore the prospect of a decent retirement to those who have lost it.”

The question, of course, remains how.

The answer is hard-wired into the way the most successful pension plans manage the funds they collect from their members. Unlike conventional mutual funds, defined benefit plans (whether public or private) are legally required to deliver specific benefits to their retirees over the course of many years. Therefore, the federal and provincial actuaries who regulate these investment pools must consider a range of variables that go beyond the straightforward rate of return. It is a complicated calculation with many moving parts: Does a plan provide survivor benefits? Is it calibrated to replace 75 percent of a member’s pre-retirement income, or 60 percent? And when are members eligible to start collecting?

For pension plan executives and their actuaries, the math focuses on a single metric: the discount rate, the fund’s target rate of return once inflation has been stripped out. In the world of pension management, the discount rate is a highly politicized number. Most Canadian public sector plans rely on conservative rates, and OTTP’s is especially conservative, at 3.1 percent. By contrast, many American state and municipal plans, which tend to take greater risks, have set themselves much higher rates, in the 7 to 8 percent range. In other words, they are betting on stellar future returns as a means of keeping current contributions to a minimum.

Pensions with higher discount rates tend to buy riskier investments. A recent study by a Dutch-American research team found that US public sector pension funds are unique in the world for taking on an unwarranted degree of risk, even though their members are aging fast. The problems, which had been building for years, hit home after the 2008 meltdown, when all of those optimistic forecasts proved to be pure fiction and many workers saw their retirement savings evaporate in the recession.

In recent years, recklessly managed public sector pension plans have been behind much of the financial, and therefore political, turmoil in US local and state governments. Across California, municipalities filed for bankruptcy as they failed to make pension payments to the growing ranks of retired civil servants. “Many cities are hobbled by retiree obligations that consume 10 percent or more of revenue,” reported Bloomberg last year. “And unlike other expenses, which can be cut or deferred, pension costs are intractable.”

Canadian pensions are not immune. Air Canada, observes Ambachtsheer, has allowed its overly generous plan to accumulate a $3.7-billion deficit. If the airline hits another patch of commercial turbulence before it sorts out its pension shortfall, he says, employees could see their retirement savings reorganized or reduced. Nortel employees fared much worse: they saw their savings consumed in a bankruptcy proceeding.

OTPP and other well-regarded Canadian public pension plans, such as the Ontario Municipal Employees Retirement System (OMERS) fund, have resisted the temptation to play possum by promising members that higher future returns will solve the financial pressures imposed by the demographic avalanche. As Leech says, “Our sponsors realized that these kinds of shifts won’t be solved by doing ‘a little better’ with our investments.”

In the past few years, Leech has pushed OTF’s executive and the Ontario government to begin thinking hard about the practical consequences of the demographic dilemma facing the plan. The problem boils down to this deeply controversial question: is it reasonable to entitle Ontario’s teachers to retire in their mid- to late fifties, knowing that many will continue drawing a pension into their late eighties and beyond?

Even while the Ontario Liberals and the province’s teachers spent much of 2012 locked in a nasty labour battle, the two sides continued working together to arrive at a solution to the shortfall. Earlier this year, they agreed to temporarily amend a provision that sees benefit payments indexed to inflation, a fix that has saved $9.6 billion in the past year.

That deal does not completely close the gap, though, and the tough decisions have yet to be made. Ambachtsheer does not believe the government, with its still-sizable budget deficit, should increase its contribution. “Taxpayers have to get out of the business of underwriting pension risk for employee groups,” he says.

Leech, moreover, points out that hiking payroll deductions, beyond the 12 percent, is unfair to younger teachers, who will end up paying far more over their careers for the same level of benefits received by those who retire in the next few years.

Therefore, with a kind of mathematical inevitability, the focus of the debate between the two sides has fallen on retirement age. Ambachtsheer is blunt in his view. Early retirement, he says, “can’t go on. It’s not a question of if; it’s a question of when.” He continues: “Taxpayers can’t afford this arrangement anymore. Resolving this is going to be tough. In game theory terms, it’s no longer win-win. It’s win-lose, and no one wants to be a loser.”

Harry Arthurs was recently appointed to lead a task force that will attempt to find common ground by sometime next year. Meanwhile, Leech has taken care to brief the OTF executive about potential gains from extending the average teaching career by even a few years.

Terry Hamilton, the OTF’s current president, is a genial bear of a man, a science teacher from Thunder Bay, Ontario, who, at fifty-seven, is very much part of the boomer march that so preoccupies Leech and his team. Reciting Leech’s message, Hamilton says that on average the fund has about $800,000 in assets for each teacher, which will generate enough annual income to cover the promised pension payments for life. For every additional year on the job, that nest egg should grow by about 10 percent, thanks to further contributions, as well as growth in the underlying investments. “That increases the value very quickly at the end of your career,” Hamilton says, “which is why Jim Leech would like us to teach longer.”

Still, as Hamilton well knows, it will be a difficult sell: teaching is a tough job, and burnout is a real professional risk. Teachers are also used to thinking in terms of the eighty-five factor, one of the appeals of entering the profession in the first place. “They like the ability to end their careers at a relatively young age,” he says. “They might not feel they’re up for it anymore.”

What is most remarkable about this ongoing negotiation is that the OTPP has forced its sponsors to pull their heads out of the sand and have a rational conversation about the plan’s long-term sustainability. Too bad the same can’t be said of Canada’s federal and provincial governments, which, with few exceptions, have refused to engage in a frank debate about the health of Canada’s retirement savings system. All we know is that most Canadians can’t afford to retire early. What’s more, the tax incentives for individuals to contribute to RrSPs—which represent tens of billions of dollars of deferred tax revenue every year—have failed to create an adequate cushion.

New Brunswick, with one of the oldest populations, seems to be the exception. In 2010, premier David Alward appointed a three-person pension task force to criss-cross the province and hammer out just these kinds of compromises between such private sector employers as hospitals and municipalities and their unions. “The issues are the same as with Teachers’, only more so,” says task force member Paul McCrossan, an actuary and a former Tory MP. One notable victory: figuring out how to prevent the municipal employee pension for Saint John from dragging the city into bankruptcy.

New Brunswick MLAs are considering legislation that enshrines this more flexible approach in law; other provinces, including Ontario and Alberta, are following suit. However, McCrossan notes, “No other government has taken on the problem with this urgency. The demographics are what’s driving it.”

Yet according to Susan Eng, who oversees advocacy for the Canadian Association of Retired Persons, the Harper government has resisted looking for a national solution to the retirement savings shortfall—insisting, for example, on unanimity among the provinces, a frustrating political hurdle. (Full disclosure: I write a politics and public policy column for Zoomer magazine, which is published by CARP.)

In recent years, CARP, on behalf of some 300,000 members, has pushed Ottawa to confront the coming crisis in retirement savings among middle-income Canadians, many of whom have no defined benefit plan and cannot invest their savings in large pension funds. In 2008, the organization began promoting a universal pension plan that would see Canadians compelled to contribute part of their earnings to a large pool, as a means of increasing their retirement savings. “The argument concerns what kind of country we are talking about,” Eng says. The purpose of a pension system, she continues, is to prevent people from retiring in poverty: “Have we achieved that yet? ”

Sixteen years ago, Canadian governments put their minds to solving a related problem, and did so with remarkable alacrity. In the early ’90s, federal regulators warned then finance minister Paul Martin that the Canada Pension Plan was running a large deficit and would likely exhaust its funds by the time the boomers started to retire in large numbers.

Moving quickly, the federal Liberals pushed the provinces to agree to increase CPP/QPP contributions and replicate the Teachers’ approach for the billions in government bonds sitting in the CPP kitty. As part of the reforms, the feds established the Canada Pension Plan Investment Board, a fund largely modelled on OTPP. Since 2000, it has grown from $44.5 billion to $183.3 billion, with the CPPIB investing in stocks, infrastructure, real assets, and government bonds. The changes have ensured that Canada’s three basic retirement programs—CPP, Old Age Security, and the Guaranteed Income Supplement—will remain solvent for decades to come.

These programs provide a safety net for low-income seniors, and a marginal level of pension income for everyone else. However, for middle-income earners who did not manage to max out their RSPs (there is always something more important to do with one’s cash), the retirement picture looks muddy at best. Many just don’t have the discipline to save prudently or consistently. If they are depending on RSPs, the health of their nest eggs depends to a great extent on their financial acumen and the markets. You gambled on overhyped stocks? Sold in a panic? Too bad. As Terry Hamilton says, “If I knew how to make money in the stock market above the rate of inflation, I probably wouldn’t be in teaching.”

The Tories have floated the idea of pooled retirement savings plans, but this reform looks like yet another serving of alphabet soup (RSP, TFSA, RESP)—one more tax incentive that seems destined to be underutilized. According to StatsCan, only six million Canadian tax filers put money into their RrSPs in 2011, with a median contribution of $2,830, almost $20,000 below the allowable maximum. “Voluntary pensions are inadequate,” says Leech’s co-author, Jacquie McNish, who points out that their new book includes case studies on pension reform in the Netherlands, Rhode Island, and New Brunswick. “That’s the nature of the beast,” she says.

Some groups, like the Canadian Labour Congress, believe the solution is to double CPP contributions as a means of forcing people to save more for retirement. (These extra funds would flow into the CPPIB, which would invest them.) Others agree. “Why not straightforwardly double the plan? ” wonders Harry Arthurs. He answers his own question: such measures are unacceptable to the Harper Tories. “It’s ideologically rather than politically untenable,” he says.

Ambachtsheer points out that governments in other countries, for instance Finland and Australia, have taken far more aggressive steps to ensure that individuals beyond the lowest-income earners have sufficient savings for their old age. When I ask David Peterson about how Canada should tackle these seemingly intractable issues, he says reform is “long overdue,” but adds that making additional savings mandatory “is a helluva philosophical question.”

It is. Eng suspects the Harper government has backed away from such a solution because it may anger Bay Street, which depends on the flow of billions of RSP dollars. But in a speech this February, one of the titans of Canada’s financial world, CIBC president and CEO Gerry McCaughey, warned that almost six million Canadians and those in their twenties and thirties will face a “significant decline” in living standards during retirement, because they have not saved enough and did not have access to a large, well-managed pension plan. His solution: reforms that would allow Canadians to voluntarily invest much more of their savings in the powerful CPPIB, or something like it, with the proviso that they must wait until retirement to withdraw the funds.

“People who have been advocating for this had to be picked up off the floor,” says Eng. Having an ally like a bank president has given pension reformers a huge boost. Still, McCaughey stopped short of calling for a compulsory retirement savings system, which is destined to be a political flashpoint. Leech, in fact, intends to use his post-OTPP independence to go on the road and drive home the argument in favour of pension reform.

On this contentious issue, Neil Orford, a history teacher in Shelburne, Ontario, offers a cautionary tale from a time when it was easier for teachers to commute their pensions, that is, withdraw their accumulated savings from the OTPP and invest the funds as they saw fit. He recalls that private investment firms came around to the school boards, encouraging teachers to make the leap, and he knows several who took the gamble. Some did okay, but many others paid dearly. “I can think of one teacher who jumped early, lost it all, and was back supply teaching for the next ten years consistently to earn back half of what he had lost,” says Orford. “Another guy lost the family farm and had to go back to full-time teaching with another board until he was sixty-five.”

As Leech says, “The reason the teachers have a very good pension is they were required to save.” In response to the accumulation of such tales, in 2001 Mike Harris’s Conservative government pushed hard for reforms to discourage older teachers from cashing out of their pension plan.

Vic and Linda Genova say they have heard similar stories as well, but Vic adds an interesting grace note to the discussion. All of those automatic deductions from their weekly paycheques didn’t register while the couple was still working, and the withheld contributions didn’t feel compulsory.

“You don’t notice the money you don’t have,” he says.

But they notice it now.

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  • Louise Mahood

    My only critic is over looking that we retired people, we offer some of the best unpaid labour as volunteers in society. That means, whether we retire on or before 65, most of us reinvent ourselves and give even more volunteer time to the community, nationally and globally.

    Otherwise, this article is a very good analysis of pension malpractice. AKA. Good pensions reduced health care costs. Who would thinks there might be a relationship between the two??? ertainly not the few greedy people who spent the entire pension for a whole company and sector of the work force.
    Well done. This article needs to be read by all those studying business.