All over the world, citizens, investors and politicians are calling on corporations to demonstrate that business is about more than just the bottom line. They are holding corporations accountable for the well-being of our society and planet, ensuring that a commitment made will be a commitment kept.
In the pension industry, the commitment to look after our larger responsibilities falls under Responsible or Sustainable Investing initiatives, which outline the integration of Environmental, Social and Governance (ESG) factors into investment decision making. As ESG increasingly becomes a household term, employers can enhance their social contributions, or ‘S’ pillar of ESG, by recognizing the social value of offering their employees sustainable retirement savings programs.
The social or ‘S’ pillar refers to the social value that a company’s products and services provide and the effects of its behaviour concerning social issues. The concept is built on the truth that a business can make a wider contribution to society through its products, the benefits it provides its staff, and its actions in local communities.
Social value refers to the quantitative and qualitative
contributions that a business makes to society. It serves as a
framework to measure the impact of a company’s activities
in improving the quality of life of people.
By design, pensions reflect a responsible, long-term investment in the well-being and financial security of workers and can be considered one of the key drivers of the ‘S’ pillar. Today, Canadians of all demographics and, more recently, all sectors have access to retirement security (with DB plans like CAAT Pension Plan open to Canada’s private and non-profit sectors, and OPTrust to the Ontario non-profit sector). The pension industry’s efforts to improve workplace access to affordable plans is an advantage for all of Canada with broader societal benefits.
A growing body of research has found that pensioners rely less on social assistance programs and enjoy more financial security to live independently as seniors. This in turn helps to protect the country’s social security, health care, and talent systems – a long-term outcome that is good for workers, businesses and Canada overall.
I and the CAAT team have long said that sustainable pensions and the lifetime retirement income they provide improve the quality of life for retirees, employees, and their families and networks. Why are more stakeholders recognizing the social value of pensions now? Because, amid headlining market volatility and inflation, Canada is facing a retirement savings crisis that is in need of a solution.
Retiring at a Time of Rising Health Care and Living Costs
The vast majority of Canadians are not saving enough for retirement and are at risk of outliving their savings. Most Canadians save for retirement without fully knowing the true cost of health care and living comfortably in retirement. A study commissioned by the Canadian Public Pension Leadership Council shows that those without any workplace pensions have a median savings of just over $3,000. On average, 70% of Canadians are worried that they aren’t saving enough for retirement and 62% are concerned they will outlive their retirement savings.
Workers who depend on CPP/QPP and OAS to supply their retirement income often don’t realize until they have already entered retirement that these programs are meant to cover basic living expenses only, not the quality of life that many may wish or expect to live in retirement. Now, amid of market uncertainty, geopolitical risks, rising living and health care costs, the outlook is even more concerning for those without a secure and sustainable retirement income plan with cost-of-living adjustments.
The good news is that Canadians are living longer on average – a typical Canadian retiree should plan for a retirement of more than 30 years – yet the longer somebody lives, the higher their healthcare and living costs become later on in life.
The average per-person spending on health care for
Canadians aged 64 and below is $2,700. The average
per-person spending on Canadians aged 65 and over?
More than four times higher at $12,000.
According to the Canadian Medical Association, seniors now outnumber children for the first time in Canada’s history. By 2056, a third of the population will be 65 and older. The demographic shifts have already had a significant impact on the health care system. When you add it up, seniors currently make up one-fifth of the population, yet they account for nearly half of all health care spending.
The Pension Solution for Canada’s Aging Population
Pensions improve security for one of society’s most vulnerable populations, seniors, and generate social and economic good for all Canadians. A study conducted by the Canadian Centre for Economic Analysis (CANCEA) found that every $10 that a pensioner receives generates $16.72 in economic activity for the country, driving $82 billion in national GDP. That is slightly higher than the GDP of Saskatchewan, or Nova Scotia and Newfoundland combined.
In rural and urban communities across Canada, pension spending supports 877,100 local jobs, and 55,500 mostly small businesses and businesses that employ young workers, a workforce demographic that is vital as the country recovers. Spending from benefits paid contributed $21 billion in government revenue, which can then be spent to support government services aimed at improving the quality of life.
Other studies conducted by CANCEA in Ontario found that pensioners are more active in their communities, are more prone to charitable giving, and enjoy higher satisfaction with their health. In fact, the study found that 90% of retired members attribute higher life satisfaction to being part of a DB pension plan.
Across all four areas that drive satisfaction with life – financial
security, mental and physical health, community involvement
and leisure, and reduced stress – the certainty of stable
retirement income paid for life was a differentiating driver.
As many of us with children or aging parents have contemplated, financial security for seniors can drastically reduce the stress and burden on families and personal caregivers. Not only do pensioners enjoy a less stress in their working years by not needing to worry as much about their retirement savings as many Canadians without a plan do, but they are also better equipped to live financially independent lives in retirement. This takes the burden off their family and makes aging in place, affording prescriptions and maintaining a healthy lifestyle easier to achieve.
Seniors that are financially secure typically enjoy better health and rely less on social and income assistance programs. To better manage impending demographic shifts and downstream costs, Canada needs a comprehensive aging strategy that includes a strong and efficient workplace pension system as a core pillar.
Pensions are an investment in the well-being and longevity of Canadians, which provide a social value that plan sponsors and participating employers can take pride in. All of Canadian society is a beneficiary of a widely accessible pension system, within which CAAT is proud to be a provider. Sharing the tangible economic benefits and tangential social benefits of pensions that improve the lives of all Canadians – as workers, as taxpayers, and as future retirees – expands the avenues that businesses can take to build a more sustainable future.