Guest Post: The Insurance Industry’s Pension Fix?

Submitted by Leo Kolivakis, publisher of Pension Pulse.

Tara Perkins of the Globe and Mail reports that the life insurance industry pushes pension fix:

Canada’s life insurers are proposing sweeping changes they say would allow the industry to help fix troubles in the pension system, lobbying against a push by some provinces for a new national plan.

The industry’s drive comes amid a raging debate over the problems, exacerbated by the recession and tumultuous stock markets, with how Canadians save for retirement. Aging baby boomers and the slow extinction of defined benefit plans are among the factors that have left many without sufficient financial protection for their retirement.

Alberta and British Columbia have been pushing a proposal to create a new national system for Canadians without a workplace plan. This voluntary plan would be in addition to the Canada Pension Plan and would be in the form of defined contribution, meaning the participants would receive payments that depend on the plan’s investment income.

Provincial premiers met in Regina last week and called on Ottawa for a national summit on retirement income, directing their finance ministers to report this year on ways that both private and public sector plans can be improved.

The life insurance industry, which is responsible for about two-thirds of defined contribution plans in Canada, has also been talking to provincial and federal governments about “private sector solutions that we think will be as effective as any government-sponsored ones,” said Frank Swedlove, president of the Canadian Life and Health Insurance Association.

“Some of the proposals that have been made raise some concerns for us,” Mr. Swedlove said. “Some of these proposals relate to a government-sponsored defined contribution plan, and we don’t think that that’s the best way to go.

“We think there are opportunities to increase pension activity for Canadians by changing some of the pension rules that exist in the country.”

Donald Stewart, chief executive officer of Sun Life Financial, the biggest industry player in the game, agreed the private sector can service the country’s retirement needs, and said it is calling on government to update pension laws to spur further involvement.

The industry wants the government to alter the Income Tax Act so that a pension plan sponsor need not have a specific relation with, or be an employer of, a participant in a defined contribution plan.

That would mean life insurers and others could sponsor an umbrella plan that could take in a number of companies and, the industry argues, make it easier for many small and mid-sized businesses to offer pensions to their employees.

It could also mean more self-employed people are able to access pensions.

The industry also wants changes to employment standards laws that would allow for the indexing of pension contributions so that contribution rates could be automatically indexed based on age and other factors. That could help new employees who aren’t yet prepared to contribute as much.

More broadly, life insurers want a major overhaul of federal and provincial pension laws in general. The laws were written in an era of defined benefit plans, and have not been properly updated following the dramatic shift toward defined contribution plans, they argue. The laws also fall into a patchwork system of federal and provincial rules that the insurers believe must be harmonized.

“If you have consistent plans, individuals can be mobile across the country,” said Sue Reibel, senior vice-president of Manulife Financial’s Canadian Group savings and retirement solutions. She has spoken to the Alberta and Ontario finance ministers, and travelled to Ottawa on the issue. “One of the things that we all agreed on is that we need to do more,” she said. “We agree that we need to enhance Canadian savings.”

She would like to see changes to the savings legislation that would give Canadians a lifetime RRSP contribution limit, rather than an annual one, similar to what Britain now has. That would give people the flexibility to contribute more when they can, and also account for the natural tendency to save more with age.

With such changes, government can spur retirement savings without intervening in the system further, the industry argues. “As a taxpayer, if I divorce myself from my company, I would step back and say that we’ve got a private sector that built everything,” Ms. Reibel said. “They’ve been building the business for the last 10 years, which is when the defined contribution business really started to grow. Why would you build a new one to do exactly what’s there, unless to point to it and say it’s broken? And I don’t think anyone’s pointed to it and said we’re not doing a good job.”

I am not surprised to see the insurance industry lobbying hard to get a piece of the pension pie. There is a lot of money at stake here and they want a piece of the action.

But no matter what the insurance industry of Canada claims, a “private sector solution” to our pension ills will not be anywhere near as effective as setting up large government sponsored defined-benefit plans that cover all Canadians. Some want an expanded CPP but I have serious problems giving the Canada Pension Plan Investment Board more money and more power. They are big enough and they have not been nearly as transparent as they claim to be.

I think we need to get rid of private sector pension schemes altogether and replace them with several large public defined-benefit plans (similar to what they have in Sweden), cap them at a certain size, set up the best governance rules and oversight possible and let these funds manage money on behalf of all Canadians, not just public sector workers.

The solution to this crisis is not more “private sector” defined-contribution plans sponsored by the insurance industry. Sure, the insurance industry will lobby hard for to get a piece of the pension pie because they want to increase their profits, but they know that a public defined-benefit plan is the only credible long-term solution. That is exactly what they fear the most which is why they are going to fight tooth and nail against any publicly sponsored universal pension plan.


Read Linda McQuaig’s article, Profit takes precedence over reform. I quote the following:

Like health care, pensions cry out for public programs. Our public pensions – Old Age Security and Canada Pension Plan – have helped keep seniors out of poverty. But the amounts provided under these programs are low and need to be topped up. Yet less than 40 per cent of Canadians have private pensions to supplement their retirement incomes.

The best way to ensure better pension coverage for all Canadians would be to put more money into our public programs.

Another promising idea, promoted by some provincial governments, involves government setting up multi-employer “super pension funds” that would operate on a non-profit basis.

Jack Mintz doesn’t like this idea. In an op-ed piece in the National Post last May, he attacked it as “dangerous.”

Just why is it dangerous? Well, it seems it’s dangerous to the interests of banks and insurance companies because, as Mintz explained, they would have trouble competing with the non-profit pension funds.

Interestingly, this is the same argument American conservatives use against Obama’s public health-care plan – that private insurers would have trouble competing with it.

Which raises the question: whose interests come first? If we have to choose between leaving elderly Canadians at risk of slipping into poverty or making it harder for banks and insurance companies to compete in the pension market, is that really a tough choice – except perhaps for Jack Mintz, Stephen Harper and others on the Canadian right?

Print Friendly, PDF & Email


  1. Anonymous

    Off Topic: A little insurance rescission porn….


    From "Frontline"

    JULY 29, 2009

    Best regards,

    More rescission porn:

    From "Taunter Media"

    Unconscionable Math
    July 28, 2009 by Taunter

    "…. It is in the health insurer’s interest to have application fraud, not only because it saves time and expense on the front end, but also because it lets them get out of any policy that isn’t going well for them….."
    Best regards,

  2. Anonymous

    Voluntarily giving the government this type of power is INSANE! If the government mishandles to pension fund — who do you go to for redress? This creates an incredible conflict of interest for the Government, and provides HUGE sums of money (even by government standards) to fallible people. Talk about regulatory capture!! Revolutions have been fought over less.

  3. Leo Kolivakis

    @ Anon, what happens to the insurance industry if the Canadian government mandates a universal pension plan for all workers? Well, it is going to take a huge hit on the 2/3 of the defined-contributions they currently manage, which is why it wants a voice at these pension hearings.

    >>>I was also anticipating some other comments like "you have to be insane to give the government more power".

    Let me be clear on something: I am for creating several large public pension plans that are going to incorporate the world's best governance standards. Think about it as CPPIB to the power of a hundred!

    I am not at all pleased with the governance standards at many of the large Canadian pension funds. They are very weak and the proof is when a disastrous year like 2008 rolls around, almost all of them got slammed hard.

    But if the option is between public DB plans or private DC plans, then I would take the former over the latter any day. I would also introduce choice and have the DB plans report their risk-adjusted returns publicly so people can evaluate the performance very carefully.

    In the U.S., there is a huge debate going on right now over public health care. It amazes me watching these idiots shout at town hall meetings. In Canada, our healthcare system is far from perfect, but infinetely better than the private sector atrocity you have down south. I would choose government bureaucracy over HMO profit-seeking bureaucracy any day!

    There are certain public goods that are offered better by the government. Healthcare and pensions should be universal publicly available goods. People need to retire in dignity and security and they shouldn't worry about being turned away by a hospital because they do have medical insurance.

    At the end of the day, you have to ask yourself what type of society do you want to live in? A civilized one based on the common good or a barbaric one based on the primacy of markets?



  4. Anonymous


    Would the insurance companies survive (given the hit that they take)?

    If the answer is no, is there any chance at all that your proposal would be adopted?

    Just curious.

  5. Leo Kolivakis

    Of course life insurers would survive but they would take a hit. My concern, however, is not the profits of life insurers but the financial security of millions of people facing pension poverty.


  6. Anonymous

    My choice is a real civilized nation, based not on the tribal barbarism of the "common good", but on individual rights. If the heavily regulated pension industry is not working properly, the solution is not to impose total regulation, but complete freedom. Remove all government controls and let a wide variety of innovative retirement income plans be created. Let free markets create a diversity of pension systems, and leave people free to choose the one that they think best suits their needs. Don't treat people like they are morons who need to be protected from themselves for their own good.

  7. JO

    Leo, got to disagree here. I come from a working class family and work for a credit union. I have in the past asked a former employer to be left out of my DB plan. The commentary at the bottom of your article involving Mintz and attacking the "right" was silly and short sighted. The reality is I do not appreciate any law that forces me to pay any third party money from each pay cheque toward my pension, only to have my money locked in until i am 55 with little or no say on how i invest it. DC or DB, my options are limited. Quite frankly, in a fiat money, highly leveraged fractional reserve system, most DB plans will mean nothing at retirement – deflation and eventually inflation will ensure that. To think that somehow – gov't – will be the saviour of the day is naive to say the least sir. The CPP/OAS/GIS are nothing but massive gov't sponsored quasi ponzi schemes where younger workers are forced to subsidize the pathetically small pensions of fellow Canadians. Of course, those contributors who retired first and paid lower contribution rates will make out fine, but the younger generation will bear the cost – higher contribution rates and lower benefits..not to mention a high likelyhood of a later eligible age. What does it matter if you get that pittance at 70 ? We are facing the greatest credit contraction of all time – no matter what happens (inflation or deflation), most pensions and cpp/oas/gis too, will be worth peanuts in real terms over the next few years. Factor in the total of your contributions over your lifetime and the lost earnings on those, and come tell me you got a great deal. The best option is to eliminate CPP/OAS/GIS for all new workforce entrants and eventually end this nonsense and eliminate these stupid public programs. Nobody ever talks about the savings to taxpayers by eliminating these expenditures (GIS and OAS, not CPP yet – but wait a year or two and then add CPP to the bailout list) – savings which could be used to pay for significant tax cuts to personal income and small business/corp income tax. Your proposal of setting up this universal DB plan is a disaster. Taxpayers shoulder all the cost of market declines / management failures to the point where in the final stages of any major crisis, either costs explode higher to maintain benefits for some, or the whole plan blows up and no one gets anything other than the ones who collected first.

    The answer is to leave it to each person to decide if and how they want to save for retirement. Sadly, the CPP/OAS/GIS and company DB plans encourage many to not about moral hazard. I know first hand – for years i lent money and interviewed hundreds and hundreds of workers at several companies – including a couple of world class FI's early on in my career – in most cases, those who had the cadilac DB plan were non savers.

    On health care, you do not have a free market health care system in the US (as is the case in banking, where gov't policies created the foundation for this crisis and exacerbated this mess). Payments are set, and gov't regulation is what allows the middlemen to thrive. A true free market system involves allowing patients to deal directly with clinics, and for price competition to take place. Gov't would simply set out and enforce minimum standards of care and ensure there is no fraud.

    I am no corp kiss ass..i know that many will try to take advantage of vulnerable people if given the chance, but to somehow say we need more gov't (read: Taxpayer liability) involvement is definitely not the right option. I hope i do not see any article from you telling us how this ongoing and developing economic catastrophe is the result of "free markets"…I will not be reading any more of your commentaries if that is the case.


  8. Leo Kolivakis


    I do not believe in "free markets" baloney and I do not believe the government is the cure for all social and economic ills. But to leave pensions to individuals is short-sighted and a recipe for disaster. That much I can guarantee you because most people do not have a clue about how to properly invest in these treacherous markets. Most professional money managers are getting slammed in these markets and we expect Joe & Jane Retail to properly invest their money?

    DB plans are not guaranteed, especially if pension deficits explode forcing governments to curtail benefits and raise contributions in the future, but at least they are legislated to protect the interests of pensioners which is more than I can say about private defined-contribution plans.


  9. redst8r

    Add my name to Anon, Jo and the others who reject your plan to socialize pensions. The US Social Security Adminstration (SSA) is resounding proof of the failure of just such a government program. Some have concluded that the same uh, contributions invested privately would provide a better return to the individual. Worse, the government has blithely spent every nickel of SSA surplus funds leaving behind a pot of IOU's for future payments. Isn't that nice?

    You state that professional money managers got "slammed" but by what magic will government money managers NOT get slammed? Plus your blind faith in the inherent goodness of government officials is wildly naive and highly disconcerting. Do you read the news? Are you serious? Putting faith in one more regulatory scheme after another is simply insanity at work.

    It seems to me that there are two classes of people who desire government control over individuals' lives: (1) those who would do the controlling (and profit by it without being subject to it) and (2) those who believe they will benefit from it (and who are willing to become slaves to it). I believe you fit into the first category.

    Last, I gently suggest that if you do not like our "barbaric" health care system please don't use any of our pharmacueticals, surgical techniques, medical devices or equipment created by our barbaric system. I certainly wouldn't want to stain your pristine medical system with our barbaric health rituals.

    And by the way, we'd appreciate it if your government would pay the full price for pharmacueticals. Thanks so much.

  10. Leo Kolivakis


    You are not reading my comments carefully. I do not have blind faith in anyone, including government pension funds. That is why transparency and oversight are crucial. As to your final comment, I guess you are part of the privileged few. I am more concerned about the restless many.



  11. LeeAnne

    The 'Socialism' meme

    in Republican/corporation

    talking points

    is out in full force

    on blogs

    in long comments (like above)

    with the same silly point of view

    –in long form.

    Look for it from now on

    call it

    what it is –


    talking points

    organized propaganda

Comments are closed.