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Today’s workers are different. Gone are the days when an employee stayed in the same job for 25 years, retired at age 65, and lived until age 71. Now we are living longer, changing career paths more frequently, and opting in and out of the workforce at varying rates. In order for pension plans to work, creative solutions are needed.

The government and private sectors work collaboratively to provide a retirement benefit program that offers Canadians the security they will need for their golden years. Their efforts seem to be working. Our country is rated among the top when it comes to the adequacy, sustainability, and integrity of its retirement income systems.

According to the 2017 Melbourne Mercer Global Pension Index, which benchmarks each country's retirement income system, Canada ranks number 11 out of 30, compared to the UK's mid-range rank of 15, and the United States, at 17.

Behind the scenes of Canada's public and private pension programs is Angelita Graham, principal at Mercer.

"I evaluate pension promises, determine funding requirements, and work with clients to find solutions that work for them to mitigate the risks inherent in the pension promise, and help them ensure the long-term sustainability of the pension plan," says Ms. Graham. She adds her job helps ensure retired employees receive their monthly benefits, thereby ensuring employers make good on their promises.

It was Graham's love of math that got her started on this path in the first place.

Demographic challenges

As an actuary, analyzing risk is at the core of what Ms. Graham does and she doesn't believe the fundamentals of the job will change in the future. But that doesn't mean the job and the requirements are stagnant. What will change is the type of risks that must be assessed and the solutions required to mitigate those risks. In this respect, the job of the actuary is at the forefront of both the dilemma and the solution when it comes to creating sustainable retirement plans for Canadians.

Take, for instance, the new demographic group currently entering the workforce. Today, more than ever, there are more contract and remote, off-site employees. These workers will have varying levels of wealth accumulation and will live much longer than previous generations of employees, which makes their retirement needs very different than those of salaried employees. For instance, a 20-year old entering the workforce today may end up changing employers six times in their career, take time off to raise children, and still need to save for a retirement that could last until age 100.

For Ms. Graham, these new risks mean she has to adjust her predictive modelling scenarios, taking into account each demographic's expected assets and liabilities. She also must consider what adjustments are needed to ensure their nest eggs are secure.

"We're still trying to figure out what the new design will be," explains Ms. Graham. "We know it will not be the traditional retirement arrangement. As a result, I believe pensions will be reimagined. The future retirement benefit will be more catered to individual needs in organizations, rather than the current one-size-fits-all. It might be more around wealth accumulation, and using our actuarial skills to enhance the employee well-being."

CPP changes in the future

At the moment, most Canadians can expect to have the Canada Pension Plan (CPP) replace one-fourth of their pre-retirement income. However, things will start to change in 2019, when the CPP will be gradually enhanced. By 2025, the maximum limit used to determine your average work earnings will be increased by 14%. As a result, government pension amounts will increase by about 33%, and Canadian retirees will receive about a third of their pre-retirement income from CPP during their retirement years.

Why the change? To address issues raised about Canadians having insufficient retirement savings while still allowing for long-term sustainability of the CPP says Ms. Graham, particularly at this time given the continued decline in private pension plans, financial market volatility and the low-interest rate environment.

Private sector pensions are also adapting

Due to global economic forecasts, as well as health and longevity issues, some private sector pension plan sponsors have changed or are considering changing the design of their plans. The job of actuaries, says Ms. Graham, is to help plan sponsors navigate these issues, and it requires expertise, discipline, and creativity.

What's unique is that even though the public and private sector may work independently of one another, when it comes to pension plans, the two have a corresponding relationship.

"We were modelling to see what the future scenario would be if governments decided to adjust their plans," explains Ms. Graham. Higher CPP contribution rates may be an additional cost to private sector firms, but it may also reduce the level of benefits they need to fund in their own plans (as their retired employees would then receive more from government plans). It's about balancing the wants of the government, the needs of the employees and the requirements of businesses.

Historically, analysis has been integral to our success

Actuaries analyzing the CPP is not something new, says Ms. Graham, and it dates back to when the CPP was first launched in the mid-1960s.

In the mid-1990s, the Canadian Institute of Actuaries was among the groups that issued a policy paper, "raising the alarm bells regarding the CPP, where the chief actuary of the CPP, based on this analysis, advised the government that CPP would run out of money within two decades unless significant changes were made," notes Ms. Graham. As a result, the federal and provincial governments increased the contribution requirements and established the Canada Pension Plan Investment Board to invest the funds.

"The work that actuaries did in their analysis helped turn around the CPP, and put us on good footing for a more sustainable future," she says. "The CPP contributions were rapidly increased and it went from pay-as-you-go to being partially funded. These changes made a difference for current and future Canadians."


This content was produced by The Globe and Mail's Globe Edge Content Studio in consultation with an advertiser. The Globe's editorial department was not involved in its creation.

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