Ontario’s nurses, social workers, lab technicians and other hospital staff have a lot of reasons to smile today.
At a time when most pension plans are cutting benefits, their Healthcare of Ontario Pension Plan (HOOPP) has just increased inflation protection for its 295,000 members. Instead of covering 75 per cent of the annual increases in the cost of living, HOOPP is raising the bar to 100 per cent.
While many plans struggle with underfunding, Ontario’s third-largest pension fund has $1.15 on hand for every $1 it must spend. Stocks on the Toronto market returned 7.4 per cent on average in 2014, while HOOPP returned a record 17.71 per cent. The plan’s average return in each of the last 10 years is 10.27 per cent.
CEO Jim Keohane seemed almost embarrassed Wednesday as he discussed his annual results. He noted somberly, “We have the highest 10-year return of any global pension plan.”
Hey, let me in. Where can I get a pension plan like that? Well, in the private sector, nowhere.
The surest way to rouse readers from slumber to red hot anger is to suggest that anything in the public sector can be better than the same thing done privately. The profit motive is the only way to breed efficiency, some say. Let the market decide. Government and quasi-government agencies are fat, wasteful and largely corrupt. You can add lazy, unproductive and incompetent.
But when it comes to pensions, that’s not true. Ontario’s big public-sector funds are the top of their class. While companies want 110 per cent of our effort, they’ve largely rewarded workers by abandoning the sort of pension plans that provide security and let people sleep easy in retirement.
Some 76 per cent of private-sector employees don’t have a pension of any kind. Of those who do have a pension, less than half have defined benefit plans. When you do the math, only about one in 10 people working in the private sector has a defined benefit plan.
Such plans pay a monthly amount for life, putting the onus on companies to come up with the money. Corporate Canada doesn’t like that idea and has been bailing out, moving to defined contribution (DC) plans where they can throw some money in the pot to match workers’ contributions (if they’re lucky) and then wash their hands.
That leaves workers with all the risks and stress of investing and managing the money on retirement. These are skills most people don’t have.
The public sector still believes that collective effort can give a better outcome. So, 86 per cent of workers for provincial and local governments — people such as firefighters and police, those at universities and colleges and workers in health care — are covered by pension plans, mostly the defined benefit kind.
Pensions provide a broader social benefit beyond the cash in a pensioner’s pocket. According to HOOPP, 7 per cent of all income in Ontario comes from defined benefit pensions, which pay out about $27 billion a year, money that supports the communities where people live.
Keohane says 20 per cent of all income in Collingwood, for example, comes from pensions.
He says it’s a myth that taxpayers are footing the bill. In HOOPP’s case, 80 cents of every dollar in the $61 billion fund come from investment returns.
There are several reasons why an individual can’t hope to match the performance of a big fund with an RRSP. Big funds bring investing expertise and economies of scale to bear in a way that individuals cannot. It is precisely because they lack a “for-profit” motive that such funds can keep fees low and returns high.
Think of how many fees you might pay along the way when investing — for advisors, buying and selling stocks and funds, trailer fees, management expense ratios, fees you can’t see.
Big funds are also “patient money”, which means they can weather market ups and downs and not be forced to sell. The next “quarter” for HOOPP is 25 years, not three months.
OMERS, Ontario’s largest pension plan, also reported strong results last week. OMERS manages the assets of 450,000 municipal employees and earned a 10 per cent investment return in 2014.
The fund stumbled during the financial collapse of 2008 and has been working its way out of a hole. In 2014, OMERS made more progress, increasing its funding level to 91 cents per dollar needed, up from 88 cents a year ago. There’s still a long way to go to catch HOOPP, but it’s going the right way.
Our frayed faith and anger with our public institutions is well-deserved, and that general discontent spills over to public pension envy.
But a better target would be private-sector employers who have abandoned their workers because it’s expedient, leaving them to make financial decisions in retirement they are often ill-equipped to make.
Source: The Star (Canada)