1. 1 Pension Wealth in the Canadian Context: Lessons for LWS Michel Palardy and Catherine Van Rompaey Statistics Canada Luxembourg Wealth Study Conference Banca d’Italia, Rome July 5-7, 2007

2. 2 Lessons for LWS Harmonizing existing wealth survey data, to the extent possible, important first step Harmonizing existing wealth survey data, to the extent possible, important first step Next step is defining ideal wealth concept and moving towards harmonized measurement Next step is defining ideal wealth concept and moving towards harmonized measurement International measures of pension wealth fraught with complexities and gaps International measures of pension wealth fraught with complexities and gaps Effective measurement key to understanding distributional effects/responses as institutional structures evolve and the population ages Effective measurement key to understanding distributional effects/responses as institutional structures evolve and the population ages Critical to formulation of appropriate policy Critical to formulation of appropriate policy

3. 3 Overview The Canadian pension system and public policyThe Canadian pension system and public policy Pension wealth in CanadaPension wealth in Canada  Macro vs micro  Concepts, measurement Impact of excluding pension wealth in CanadaImpact of excluding pension wealth in Canada Canada vis-à-vis the United States: an illustrative exampleCanada vis-à-vis the United States: an illustrative example

4. 4 Canadian Pension System “Three Pillars” “Three Pillars” Government administered plans Government administered plans Old age security/Guaranteed income supplement Old age security/Guaranteed income supplement Canada and Quebec Pension Plans Canada and Quebec Pension Plans Employer-sponsored plans Employer-sponsored plans Registered pension plans (defined benefit or defined contribution) Registered pension plans (defined benefit or defined contribution) Group RRSPs (employer contributes to individual saving plan) Group RRSPs (employer contributes to individual saving plan) Other (Deferred profit sharing, retirement compensation arrangements) Other (Deferred profit sharing, retirement compensation arrangements) Individual savings plans Individual savings plans Registered retirement savings plans (RRSPs, LIRAs, RRIFs) Registered retirement savings plans (RRSPs, LIRAs, RRIFs)

5. 5 Policy environment Health of the defined-benefit pension system under intense scrutiny in Canada Health of the defined-benefit pension system under intense scrutiny in Canada Coverage ratios declining for employer-sponsored plans Coverage ratios declining for employer-sponsored plans Erosion of defined benefit system viewed as undesirable Erosion of defined benefit system viewed as undesirable Sponsors concerned about growing difficulty maintaining funds; actuarial deficits in wake of stock market crash Sponsors concerned about growing difficulty maintaining funds; actuarial deficits in wake of stock market crash Provincial pension regulators flag “crisis” Provincial pension regulators flag “crisis” Bank of Canada concerned, risks to financial system Bank of Canada concerned, risks to financial system Ontario Expert Commission on Pension Reform Ontario Expert Commission on Pension Reform

6. 6 Policy environment Heightened demand for pension statistics Heightened demand for pension statistics New regulatory data on actuarial liabilities (funded status) of pension plans and assumptions in valuation to come out this year New regulatory data on actuarial liabilities (funded status) of pension plans and assumptions in valuation to come out this year Pension satellite account in Canadian SNA Pension satellite account in Canadian SNA

7. 7 Macro measures: Pension Satellite Account in Canadian SNA Pension wealth accounted for in the National Balance Sheet Account (as asset and liability) Pension wealth accounted for in the National Balance Sheet Account (as asset and liability) New specialized “Pension Satellite Account” New specialized “Pension Satellite Account” Employer sponsored plans, government plans, individual saving plans Employer sponsored plans, government plans, individual saving plans Wealth positions and associated flows Wealth positions and associated flows Critical to decomposing macro saving rates Critical to decomposing macro saving rates SNA productive income concept includes accrued pension income, not benefits SNA productive income concept includes accrued pension income, not benefits Top priority of federal finance department Top priority of federal finance department To be released experimentally this year, then implemented as a regular annual release To be released experimentally this year, then implemented as a regular annual release

8. 8 Pension Satellite Account in Canadian SNA

9. 9 Micro measures on the Survey of Financial Security Wealth surveys conducted irregularly by Statistics Canada Wealth surveys conducted irregularly by Statistics Canada Long hiatus from 1984 Assets and Debts survey to 1999 SFS Long hiatus from 1984 Assets and Debts survey to 1999 SFS Wealth value of employer-sponsored pension plans introduced subsequent to 1999 release Wealth value of employer-sponsored pension plans introduced subsequent to 1999 release Extensive consultation, including federal policy departments and Canadian central bank Extensive consultation, including federal policy departments and Canadian central bank Methodology developed with assistance of an actuary Methodology developed with assistance of an actuary Part of featured net worth for 2005 SFS release Part of featured net worth for 2005 SFS release

10. 10 Pension wealth on the SFS Pension assets Pension assets Do not include social security or government- administered plans Do not include social security or government- administered plans CPP/QPP considered in 2005 CPP/QPP considered in 2005 Include employer-sponsored plans Include employer-sponsored plans Defined contribution and defined benefit (the largest share) Defined contribution and defined benefit (the largest share) Include tax-deferred individual savings plans (RRSPs, RRIFs) Include tax-deferred individual savings plans (RRSPs, RRIFs) Large portion of financial assets held in this form Large portion of financial assets held in this form

11. 11 Pension wealth: SFS concepts and methodology Present value of expected future benefits for employer pension plans Present value of expected future benefits for employer pension plans Valuation on a “termination” basis Valuation on a “termination” basis “Going concern” valuation also produced (about 30% higher) “Going concern” valuation also produced (about 30% higher) Some questions asked of respondent, not terms and conditions of plan Some questions asked of respondent, not terms and conditions of plan Calculation links to income tax data and Pension Plans in Canada database Calculation links to income tax data and Pension Plans in Canada database

12. 12 Trends in pension coverage Statistics Canada ’s Pension Plans in Canada Program Statistics Canada ’s Pension Plans in Canada Program Regulatory information from provincial supervisory authorities Regulatory information from provincial supervisory authorities 15,336 Registered Pension Plans covering 5.7 million members as of 2005 15,336 Registered Pension Plans covering 5.7 million members as of 2005 39% of paid workers covered 39% of paid workers covered Membership rising, but coverage rates declining, faster for men than for women Membership rising, but coverage rates declining, faster for men than for women About 1/3 of families had no pension assets of any kind according to SFS 2005 About 1/3 of families had no pension assets of any kind according to SFS 2005 Majority had lower income from employment Majority had lower income from employment

13. 13 Pension wealth Canadian pension assets by age group

14. 14 Excluding pension wealth in Canada: considerations LWS net worth only 42% of Canadian measure LWS net worth only 42% of Canadian measure Country rankings and portfolio composition Country rankings and portfolio composition Employer pensions second largest asset : differential coverage across families Employer pensions second largest asset : differential coverage across families Financial assets held in individual retirement savings plans (RRSPs), designated as pension assets Financial assets held in individual retirement savings plans (RRSPs), designated as pension assets Considering only “non-pension” financial assets is incomplete view of discretionary savings Considering only “non-pension” financial assets is incomplete view of discretionary savings 2005 SFS collected investment distribution of registered retirement savings plans; not available in 1999 2005 SFS collected investment distribution of registered retirement savings plans; not available in 1999

15. 15 Excluding pension wealth in Canada: considerations Wealth concentration Wealth concentration Pension assets clearly have equalizing effect Pension assets clearly have equalizing effect Proportion of net worth held by highest decile higher Proportion of net worth held by highest decile higher (58.2% vs 50.9%) (58.2% vs 50.9%) Gini coefficients higher and show different trends Gini coefficients higher and show different trends (0.746 vs 0.688) (0.746 vs 0.688) Trends in net worth for specific groups quite different Trends in net worth for specific groups quite different E.g., couples with children from 1999 to 2005 E.g., couples with children from 1999 to 2005 30.4% growth in median net worth including pension assets 30.4% growth in median net worth including pension assets 45.2% growth when pension assets excluded 45.2% growth when pension assets excluded Relevant to study net worth across age groups when savings for retirement excluded? Relevant to study net worth across age groups when savings for retirement excluded?

16. 16 Canada vis-à-vis United States Canada often compared to our neighbours to the South Canada often compared to our neighbours to the South Simple illustrative example to show coverage of different elements of pension system Simple illustrative example to show coverage of different elements of pension system Consider implications for interpretation of wealth measures, both nationally and cross- nationally Consider implications for interpretation of wealth measures, both nationally and cross- nationally Could be expanded to look at other countries with different retirement income systems Could be expanded to look at other countries with different retirement income systems

17. 17 Canada vis-à-vis United States retirement income system Similar elements: “three pillars” Similar elements: “three pillars” Have evolved in different directions at different rates Have evolved in different directions at different rates Unlike U.S., defined benefit system remains important in Canada, pension reform emphasizes its protection Unlike U.S., defined benefit system remains important in Canada, pension reform emphasizes its protection Highlight elements missing in wealth surveys to study distributional effects Highlight elements missing in wealth surveys to study distributional effects Pension reform debate lacks key insights Pension reform debate lacks key insights

18. 18 Pension wealth in national sources, Canada and US

19. 19 Canada vis-à-vis United States Financial assets

20. 20 Conclusions Pension reform of heightened interest in Canada and elsewhere Pension reform of heightened interest in Canada and elsewhere Can only increase in importance as population ages Can only increase in importance as population ages A cross-national database covering pension wealth would be an invaluable policy tool A cross-national database covering pension wealth would be an invaluable policy tool International standards for micro measures could provide support for jurisdictions to develop estimates International standards for micro measures could provide support for jurisdictions to develop estimates Define ideal/expanded wealth concept in relation to essential practical concept Define ideal/expanded wealth concept in relation to essential practical concept Enable micro-micro comparisons: increase coherence and analytical scope Enable micro-micro comparisons: increase coherence and analytical scope