With pension reform on the horizon, policymakers must ensure they address key problems underlying the retirement savings system, including Canadians’ need for objective, affordable financial advice, say executives at consulting firm Mercer.

At Mercer’s Pension Outlook event in Toronto on Tuesday, Malcolm Hamilton, worldwide partner of retirement, risk and finance at Mercer, said that Canada’s retirement savings system works well for many Canadians. But certain segments of the population are being left behind, he said.

“This is a private sector problem. It’s a problem for people middle-aged,” said Hamilton, “and it’s a problem for people with above average incomes.” He added that small and medium sized businesses and self-employed individuals are largely ignored by the pension system.

Hamilton commended the financial services industry for creating numerous new tools to help Canadians invest and save for retirement, including exchange-traded funds and easily accessible online brokerage accounts. But he said the problem is that the majority of Canadians are not knowledgeable enough to manage their own investments.

“They don’t know what to do; they don’t know where to get objective, affordable advice,” Hamilton said. “They’re making bad decisions, they’re money is ending up in the wrong places.”

Added Hamilton: “We need to figure out a way to deal with that.”

Another key problem that needs to be addressed, Hamilton said, is the tendency for Canadians to borrow too much. He said large debt loads are becoming an increasingly common reality for younger Canadians, which will make it more challenging for them to save for retirement.

As policymakers attempt to reform the pension system in Canada, Hamilton urges them to focus on these underlying issues, and to ensure changes target the appropriate groups. For example, he advises against forcing higher levels of savings among the poor, who cannot afford to put money aside, and who do not face a retirement saving problem.

Hamilton also advises against forcing young people to save, since they’ll end up taking longer to pay down debt.

An important factor for pension reform to include is addressing the public/private sector divide, Hamilton said. He noted that the per capita savings of public sector workers is triple the per capita savings on private sector employees.

Policymakers must also be realistic about the changes that are achievable for the system, Hamilton said.

“Before we start any reform in this country, we need to do so with a clear view of what can be achieved and what can’t be achieved.”

Though many Canadian pension plans were hit hard by the financial crisis, Hamilton said this does not indicate a problem with the system. He said Canada’s pension system is already strong, ranking fourth in the 2009 Melbourne Mercer Global Pension Index.

“Bad things happen to good systems,” he said. “The disappointment that we’re seeing here is the result of quite unrealistic expectations about how retirement savings systems can weather financial collapses.”

He said the best systems are those that cope effectively with low interest rates, poorly performing stock markets, and other factors beyond their control.

Scott Clausen, national partner of retirement, risk and finance at Mercer, agreed that these coping mechanisms are crucial. He said reforms to Canada’s pension system must include allowing reserve accounts, and better funding legislation, and other measures to enhance benefit security for members during market downturns.

“To strengthen the private sector pension rules, we need to see funding rules that do not need to change every time the market conditions change,” Clausen said.

Other changes he recommends include allowing more flexible plan design options, such as target benefit pension plans and multi-employer pension plans.

IE