Stephen Poloz, former Bank of Canada governor and author of The Next Age of Uncertainty, wrote an Op-Ed in The Globe and Mail about the necessity of defined benefit pension plans and greater retirement income security.

Canadians are less prepared for retirement than they think. They don’t know how long they will live, what cumulative income they will earn, or what investment returns might be. Rising volatility is making these guesses harder – fostering a growing sense of insecurity that is likely to drive a renaissance of defined benefit, or DB, pension plans.

He goes on to explain how several economic factors, such as an aging global workforce and increased use of artificial intelligence and robotics, will disrupt employment, deepen income inequality, and slow economic growth. This could result in Canadians spending less during their working years and retirement, which will lower economic growth and cut into government tax revenues.

All of this paves the path for a rise in DB pension plans. An extra dollar dedicated to one is a far more effective means of assuaging rising life insecurity for employees than an extra dollar in income.

From the point of view of the employee, a large independent pension pool effectively eliminates longevity risk, minimizes fund management costs, and permits maximum investment diversification. It allows households to spend their income freely, during both work and retirement, thereby helping to stabilize the economy automatically, raising average economic growth while boosting government tax revenues.

In these conditions, Canada’s pension system ought to transition back toward broader DB pension coverage all by itself. Surveys show that employees are willing to contribute more for greater lifetime financial security, and this will only increase in a riskier future. Companies will likewise want to deploy more compensation tools in the face of persistent worker shortages.

Read the full op-ed in The Globe and Mail and full research paper.