Why We Need a Pension Revolution

Abstract

There is now a broad consensus that workplace pension arrangements around the world are sick and in need of strong medicine. Pension coverage and adequacy are too low, and pension uncertainty too high. The prescription of some pension experts is to resurrect the traditional defined-benefit (DB) plan. Others say broad defined-contribution (DC) plan coverage is the cure. This article argues that we have to move from an “either-or” to an “and-and” mindset if we want to seriously improve global workplace pension coverage, adequacy, and certainty. Integrative thinking about these issues leads to pension arrangements that combine the best of both traditional DB and DC plans, and that minimize the impact of their less attractive features. However, redesigning the pension formula is only half the cure. We must also redesign the institutional arrangements through which workplace pensions are delivered. The ideal pension delivery institution has expertise, scale, and acts solely in the best interests of plan participants. There are far too few pension funds around the world today that can meet this triple test. Placed in a Canadian context, the first priority should be to fill the workplace pension gap for the some 4 million Canadian private sector workers without registered pension plans currently facing materially reduced post-work standards of living.