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How To Improve Long Term Planning for Pension Funds: Policy Options


August 10, 2022

Coins Stacked with a Chart Showing Growth Behind Them

Canadians’ higher average life expectancy combined with rock-bottom bond yields is making long-term planning a difficult task for pension funds.

To create a more sustainable system, plans can either force members to increase their level of contribution or find ways to invest capital more efficiently, writes Sebastien Betermier in a recent Policy Options column.

Betermier, the incoming executive director-designate of the International Centre for Pension Management, points to a study he and his colleagues conducted showing that large public Canadian pension plans, which are not subject to strict solvency requirements, were able to generate approximately an 8% annual rate of return — because they were able to bear short-term risks in exchange for long-term gains.

Shifting to a long-term mindset, however, will require a collective shift in expectations. Fund managers and board members will have to learn to manage short-term pressures; pension plan members will have to get used to the idea of having bad years; and regulators will also have to allow for reasonable levels of risk-taking by pension funds.

Learn more about the importance of this long-term mindset shift here.

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