When saving for retirement, there’s a big difference between doing it on your own and being a member of a Canada-model pension plan like HOOPP. How big is the difference? A typical worker would have to save $890,000 more on their own over their lifetime to get the same retirement income as a member of a good defined benefit (DB) pension plan.
This is just one of the key findings from HOOPP’s latest report, called
The Value of a Good Pension. We commissioned this research, led by Common Wealth, to find out the most efficient way to save for retirement.
The conclusion is clear. A Canada-model pension plan such as HOOPP is the most effective way to save for your senior years. The numbers in the report prove it.
You’ve probably heard that costs can have a big impact on your saving. In fact, cost is just one of five key drivers when it comes to maximizing efficiency:
Fees and costs:
The costs of investment management and administration for good pension plans tend to be significantly lower than the costs of retail investing and advice. Over 40 years, a 2% annual fee on a retail mutual fund can eat up nearly half of an investment. By contrast, a good DB plan provides decades of investment management, as well as management of your monthly pension when you retire, for a fraction of that.
Saving:
When saving is voluntary, people tend to start later, save less, and be inconsistent. Collective plans that have mandatory contributions make saving easier and automatic.
Investment discipline:
On their own, people tend to make poor investment decisions, trying to time markets because they fear missing out on a profit or losing money. Pension plan professionals have the expertise and tools to understand markets, the value of investment assets, and how to invest for the long term.
Fiduciary governance:
In a Canada-model DB plan, the interests of investment professionals and plan members are aligned. When investments are managed on a non-profit basis by in-house professionals with a fiduciary responsibility to members, they tend to perform better than retail funds offered by for-profit organizations.
Risk pooling:
To manage investment risk and longevity risk, which is the very real chance of outliving your money, many individuals try to save more, spend less, and make overly conservative investment decisions. But a member of a good pension plan doesn’t have those worries. Investment and longevity risks are pooled across all members and absorbed across multiple generations.
Together, these key drivers make good pension plans significantly more efficient. In fact, for every dollar contributed, the retirement income from a Canada-model pension is $5.32, compared with $1.70 from a typical individual approach.
“We’ve talked to both the provincial and federal governments and all three parties about the report, and there is a lot of interest in this,” said HOOPP President & CEO Jim Keohane. “I think a lot of people recognize there is a bit of a gap in the retirement system right now.”
The bottom line is that HOOPP and Canada-model pension plans are a great deal for members, employers, and taxpayers. Since members don’t need to contribute as much, they are left with more money to spend during their working years. They also depend less on government assistance when they retire. That’s good for all of us.
Learn more about the research and tell us what you think. Send us an email at
communications@hoopp.com.