Pensions under attack
Changing demographics, low interest rates pressuring plans
Pension and benefit plans across the country are being threatened by high management costs for employers, an aging and less productive workforce, prolonged low interest rates for fixed-income investing, volatile stock markets and soaring health-care expenses.
As a result, employers are facing a talent gap, escalating health-care costs, retirement risk and waning employee engagement, said Ted Singeris, president of human resources firm Mercer Canada.
“Thirty per cent of Canadian businesses say they face a shortage in skilled labour, nearly double the rate in early 2010,” he told the Alberta conference of the Canadian Pension and Benefits Institute. “Fifty-six per cent of organizations say they have offered specific strategies to retain or attract essential talent, the most common strategies being raises and signing bonuses.”
He said health and wellness are prerequisites for productivity.
“Increases in health-care costs from new high-cost medication, increased usage due to chronic health issues, and aging demographics are creating strain for government, employees and employers. Employers should plan for five- to eight-per-cent increases in annual health-plan costs, with drugs still being the largest part as the number of prescriptions per employee is rising.
“And employees are valuing their health-care benefits more than ever, because of anxiety generated by the changes in government programs. Two in five employees say they would increase their plan premiums to maintain their health benefits.”
As fewer companies offer defined benefit pension plans, workforces are changing.
“With the elimination of mandatory retirement ages, employees with insufficient savings may simply refuse to accept a golden watch, and carry on for all the wrong reasons. Employers can make sure employees have access to good products, and participate actively in the education process by helping members make informed choices.”
Some 36 per cent of workers are seriously considering leaving their organization, including 46 per cent of people 25 to 34.
“One in five employees on the job has ‘checked out’ and is not committed to stay or leave. Retirement plans rate second in terms of reason for staying, after pay.”
Another issue challenging pension plans has been prolonged low returns from fixed income investments.
Todd Haibeck, with the Pimco Canada bond agency, says his firm is currently more concerned with preserving clients’ capital than growing it. Fixed- income investors are being stymied by global debt.
“To get out of this, three grand bargains have to be made,” Haibeck said. “You have to get the emerging markets to get away from an export economy and develop a middle class and consume goods from abroad; you have to get the peripheral and core countries in Europe to agree to get back in shape fiscally; and you need Republicans and Democrats to compromise in the U.S.”
Entitlement continues to rip Europe apart.
“In Greece right now, if you have what’s called a ‘dangerous job,’ you can retire with full pension and benefits at age 50 if you’re a woman and 55 if you’re a man. Currently there are 580 jobs listed as dangerous, including hair dressers around aerosols, television and radio announcers near bacteria on microphones, plus trombone and saxophone players because of constant pressure on the breathing system.”
Haibeck says Americans no longer looking for work are causing structural damage to the workforce, but a slow housing recovery can save an economy that’s based 60 per cent on consumption.
He doesn’t see a lot of value in Canada, due to rising household debt.
“Right now in Canada it’s cheaper to rent a house; in the U.S. it’s cheaper to own. But it’s much easier to get a mortgage or car loan in Canada right now.”
He thinks this economic story will end with inflation, so he likes inflation-protected investments like gold, physical assets, real estate and global real return bonds.