Building retirement income adequacy is key social policy for future, says John Crocker of Healthcare of Ontario Pension Plan
The “next big thing” in social policy will be ensuring retirees have enough to live on, says John Crocker, outgoing president and CEO of the Healthcare of Ontario Pension Plan.
Crocker, who is ending his 30-year career in pension investments and 10-year term as HOOPP CEO on Dec. 31, says efforts should be made to improve workplace pension plans, boosting the number of defined benefit plans, rather than focusing on introducing cheaper alternatives.
“With pensions, the less you pay in, the less you get out – it’s a simple as that,” he says.
In Australia, he says, a nation-wide switch away from defined benefit plans has led to widespread senior poverty.
“Half of Australian seniors live below the poverty line, and two-thirds run out of pension income by age 75. Is that what we want here?
“When you’re designing a retirement plan, you should start by looking at what you want to get out of it – what you need for an adequate retirement. That’s the beauty of defined benefit. You know in advance what you’ll get out of it.
“Not many people in other types of plans realize that you need to save $500,000 to provide yourself with an annual pension of $25,000, but that’s the reality. We owe it to people to help them get there – we need to make workplace pensions better, not worse.”
Leaving Canadians without plans – to cope on their own – is not an answer, he adds. The average Canadian has saved just $60,000 in his or her RRSP by retirement age.
“It’s just not enough – you can’t live on that for 20, 30 years.”
HOOPP, a fully funded defined benefit pension plan, shows that DB can work, he says.
“With good governance, professional investors, a sound investment strategy, and mandatory contributions by members and employers, you can get there.”
The average HOOPP pension starting in 2010 was $18,400 – meaning that after 25 years, a retiree will have received $460,000 in pension payments, he explains.
Crocker says he’s confident that HOOPP will show solid results, and most importantly, be in a sound funded position, when it reports its 2011 results in the spring of 2012.
Crocker has spent much of his time in recent years speaking up for defined benefit plans. He’s authored numerous columns, given speeches, and has lent support to a blog dedicated to retirement income adequacy, found at ariapensions.ca.
He feels this is a critical issue.
“It’s important for us to demonstrate that DB can still work. There is no more efficient, more effective way to deliver pensions to people than the DB model.”
Other types of plans, he adds, “simply download the responsibility for retirement onto the shoulders of the average working person. Very few among us know investing well enough to know when to buy, when to sell, or when to hold – it’s not fair to force busy people to try and figure this out by themselves.”