Canada’s Pension System Holds Steady in Global Ranking as Retirement Risks Rise
According to the latest global pension ranking by Mercer and the CFA Institute, Canada’s pension system has maintained its B-level rating with a score of 70.6, up from 69.8 in 2021. However, this improvement did not translate into a higher ranking, as Canada slipped to 13th spot.
Global Pension Ranking: Iceland Takes the Top Spot
The Mercer CFA Institute Global Pension Index ranks 44 global pension systems and covers 65% of the world’s population. The latest report highlights the strengths and weaknesses of each system, providing recommendations for reform to improve retirement benefits. This year, Iceland topped the list with an overall index value of 84.7, closely followed by the Netherlands at 84.6 and Denmark at 82.
Canada’s Pension System: A Mixed Bag
While Canada’s pension system has shown improvement in terms of its score, it still lags behind many other countries. Thailand had the lowest index value in the 2022 ranking, with a score of 41.7. This highlights the challenges faced by retirees in countries with underdeveloped pension systems.
Rising Retirement Risks
The Mercer-CFA report warns that inflation and rising interest rates are posing significant challenges to retirees worldwide. As employers continue to shift from defined-benefit (DB) plans to defined-contribution (DC) plans, retirees face uncertain futures. DB plans come with guaranteed payouts, often indexed to keep up with inflation, while DC plan payouts are based on market performance.
The Impact of DC Plans
According to F. Hubert Tremblay, principal and senior wealth adviser at Mercer Canada, "As DC pension plans continue to make up a greater part of Canadians’ retirement, turbulent markets, soaring inflation, and a higher cost of living are all impacting older workers transitioning to full or part-time retirement." This highlights the need for employers and employees to manage these risks effectively.
The Importance of Pension Reform
The Mercer-CFA index provides a comprehensive study of global pension systems, highlighting areas where reform is necessary. The report suggests possible reforms that could improve retirement benefits, including:
- Increasing transparency in pension fund management
- Improving communication between employers and employees about pension plans
- Encouraging employers to adopt DB plans to provide guaranteed payouts
- Developing more robust mechanisms for managing DC plan risks
Conclusion
While Canada’s pension system has maintained its B-level rating, the country still ranks 13th globally. The Mercer-CFA report highlights the challenges faced by retirees in countries with underdeveloped pension systems and emphasizes the need for reform to improve retirement benefits.
Recommended Reforms
To address these challenges, employers and employees must work together to manage risks effectively. This includes:
- Improving communication about pension plans
- Encouraging the adoption of DB plans
- Developing more robust mechanisms for managing DC plan risks
By implementing these reforms, countries can provide more adequate and sustainable retirement benefits to their citizens.
Sources
The Mercer-CFA Institute Global Pension Index is a comprehensive study of 44 global pension systems, covering 65% of the world’s population. The report provides a ranking of each country based on its pension system, highlighting strengths and weaknesses. The report also suggests possible areas for reform to improve retirement benefits.
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