This document summarizes key aspects of pensions in Canada. It discusses the issues facing pensions globally and in Canada due to low interest rates. It defines pension assets and liabilities and explains underfunding. It outlines the differences between defined benefit and defined contribution plans. It provides an overview of retirement options in Canada like CPP, OAS, RRSPs, and TFSAs. It discusses the large unfunded liabilities of public sector pensions in Canada and other countries. It also summarizes statistics about assets and returns of private sector pensions in Canada.

1. Pension – Canada – Analysis –
June 17, 2016
By: Paul Young, CPA, CGA

2. • This presentation is on perspective when it comes pensions

3. Paul Young - Presenter
Bio
• CPA/CGA
• 25 years of experience in Academia, Industry and Financial solutions
• Youtube Channel -
https://www.youtube.com/channel/UCAArky1bAXPSuV2NLtUnyLg

4. Agenda
• Pensions Issues
• Market
• What are pension assets?
• What are pension liabilities?
• Pension deficits/Underfunding
• Accounting Rules – Pensions
• Defined Benefit vs- Defined Contribution
• Retirement Options / Canada
• Public Sector Pensions
• Private Sector Pensions

5. World Wide Issues / Pensions
• "We've had more than half a decade
of very low interest rates and that
means someone who has been
putting money into a savings account
or into a pension fund - the value of
their lifetime retirement is about half
the value of someone who retired in
2000," said Catherine Mann, the
OECD's chief economist.
• Tom McPhail, head of pensions
research at Hargreaves Lansdown,
said the OECD’s findings were
consistent with its UK research.
• “Someone that started putting
money in a pension in the 1960s was
investing at a time when baby
boomers were entering the
workforce. But the last 16 years and
the financial crisis have had an
extremely negative impact on asset
prices.”
Source: Telegraph

6. Market Returns

7. Pension deficits (underfunding)
• A company retirement plan that has more liabilities than assets. In
other words, the money needed to cover current and future
retirements is not readily available. Hence, there is no assurance that
future retirees will receive the pensions they were promised or that
current retirees will continue to get their previously established
distribution amount.

8. What are Pension Assets
• The term pension plan assets refers to the funds a company will use
to meet its future compensation obligations to retired
employees. Pension plan assets consist of cash as well as investments
such as capital stock, bonds, and annuities.

9. What are pension liabilities
• Future payouts that a pension is obligated to make. A pension run by a co
mpany that has a large number of workersnearing retirement has more li
abilities than one run by a company with a smaller eligible workforce. Acc
ounting for pension liabilities varies from country to country.

10. Accounting Rules / Underfunding
• Handling pension underfunding depends on countries

11. Pension Plans
Defined Contribution Plans
• Defined contribution plans are funded primarily by the employee, called the participant, with the employer matching contributions to a certain
amount. The most common type of defined contribution plan, which many people are familiar with, is a 401(k) plan. A participant may elect to
defer a portion of his gross salary via a pretax payroll deduction to the plan, and the company matches according to its summary plan description,
or SPD. The contributions can be invested, at the participant's direction, in select mutual funds, money market funds, annuities or stock offered by
the plan. As the employer no longer has any obligation on the account's performance after the funds are deposited, these plans require little work
and are low risk to the employer. The employee must direct contributions and investments to grow theassets adequate for retirement.
Defined Benefit Plans
• Employers guarantee a specific retirement benefit amount for each participant of a defined benefit plan, which can be based on the employee's
salary, years of service or a number of other factors. Employees have little control over the funds until they are received in retirement. The
employer bears the investment risk of ensuring the defined benefit amount is able to be paid to the retired employee. Due to this risk, defined
benefit plans require complex actuarial projections and insurance for guarantees, making the costs of administration very high. This has
made defined benefit plans all but obsolete.
•
Read more: How does a defined benefit pension plan differ from a defined contribution plan? |
Investopedia http://www.investopedia.com/ask/answers/032415/how-does-defined-benefit-pension-plan-differ-defined-contribution-
plan.asp#ixzz4Bt4uwtDd
Follow us: Investopedia on Facebook

12. Retirement options
• CPP - http://www.cfib-fcei.ca/english/article/5172-myths-versus-reality-canada-pension-plan-cpp.html
• TFSA - https://www.envisionfinancial.ca/lang/en/Personal/Invest/InvestmentPlans/TFSA/ or http://business.financialpost.com/personal-
finance/retirement/rrsp/10-things-you-should-know-about-tfsas?__lsa=5230-a42a.
• RRSP - http://www.winnipegfreepress.com/business/finance/canadians-have-lots-of-retirement-savings-options--297380641.html.
• Harper and Oliver – CPP - http://business.financialpost.com/personal-finance/retirement/ottawa-to-consider-voluntary-canada-pension-plan-expansion-
joe-oliver-says
• Home Equity - http://www.pwc.com/en_CA/ca/real-estate/publications/pwc-emerging-trends-in-real-estate-2015-en.pdf. Baby Boomers are likely sitting
on more equity due how much housing prices have risen over the past 30 years: http://creastats.crea.ca/natl/index.htm. Harper has changed the rules on
mortgage, by tightening them up: https://ca.news.yahoo.com/blogs/canada-politics/four-great-things-jim-flaherty-did-canada-130221848.html.
• Guaranteed Income Supplement - http://www.servicecanada.gc.ca/eng/services/pensions/oas/gis/
• CD Howe - http://www.cbc.ca/news/business/canadians-are-saving-enough-for-retirement-says-c-d-howe-study-1.3100653
• OAS issues - http://www.therebel.media/justin_trudeau_new_ad or
Source:
• BMO - http://www.bmo.com/pdf/ewp/womeninwealth/15-375-BWI_Q1_2015-women-in-wealth-CDN-E05web.pdf
• http://www.winnipegfreepress.com/business/bmo-study-more-canadians-have-savings-plans-but-fear-they-arent-saving-enough-298861601.html. Why
are Canadians not saving enough? Could it be kids are living at home longer and/or high mortgages or other household budgets pressure?
• OAS sustainability - http://www.newswire.ca/en/story/1467819/canada-pension-plan-and-old-age-security-benefit-rates-effective-january-1-2015. People
are living longer as compare to when OAS was first introduced - http://www.cbc.ca/news/health/life-expectancy-in-canada-hits-80-for-men-84-for-
women-1.2644355. So, Harper is making adjustment to ensure the OAS is there for people in the future. Yet JT never comments on people living longer or
how he would fund the program, why?
• Tax Programs - http://advisors.tdwaterhouse.ca/public/projectfiles/1479dc27-9b72-4af9-b9c1-d83af85f423b.pdf.
• Taxation - http://www.slideshare.net/paulyoungcga/taxation-policies

13. Public Pension
• The total value of unfunded or underfunded government pension
liabilities for 20 countries belonging to the Organisation for Economic
Co-operation and Development (OECD) — a group of largely wealthy
countries — is $78 trillion, Citi said. (The countries studied include
the U.K., France and Germany, plus several others in western and
central Europe, the U.S., Japan, Canada, and Australia.)
• Government are responsible for pension shortfalls

14. Canada Public Pensions
• Governments across the country need to follow suit and move quickly
to return sustainability and accountability to the public sector
pension system. Commitments to current employees should be
honoured, but this benefit should be phased out for those civil
servants still far away from retirement.
• In the context of an unfunded public service pension liability
amounting to an estimated $300 billion as of 2012, it's even more
critical than ever to bring government pensions in line with the rest of
the working world.
• Source – CFIB/Huffington Post

15. Private pensions
• The market value of employer-sponsored pension funds grew 3.0% in the fourth quarter,
following a 0.7% decline the previous quarter. Pension fund assets totalled $1.7 trillion.
• The value of pension fund assets held in stocks increased 4.0% in the fourth quarter, while the
value of mortgages grew 5.9%, and investments in real estate rose 5.1%.
• The value of foreign investments held in Canadian pension funds was up 5.0%, mainly because of
a 7.3% gain in the value of foreign stocks. Foreign investments accounted for about one-third of
total pension fund assets.
• Pension fund revenue increased 59.5% in the fourth quarter. Pension fund managers reported
year-end gains in employer and employee contributions, investment income, and profits from the
sale of securities.
• Expenditures fell 26.5%, mainly because of reduced losses from the sale of securities. Combined
with the increase in revenue, the decline in expenditures led to a gain in net income, which rose
from $2.2 billion in the third quarter to $29.7 billion in the fourth quarter.
• Over 6.2 million Canadian workers are members of employer-sponsored pension plans. Of this
group, 5.2 million (83.3%) workers belong to pension plans with assets managed by trusteed
funds. The remaining members have assets managed by insurance company contracts.

16. Other Sources
• CPP - http://www.slideshare.net/paulyoungcga/is-the-canada-
pension-plan-sustainable-cpp-canada
• OAS - https://www.youtube.com/watch?v=dJ80thl57kM
Contact:
Paul_Young_CGA@Hotmail.com