- Low interest rates "just the tip of the iceberg": growth and returns on investment must improve if current pension schemes are to remain viable
TORONTO, Nov. 21, 2013 /CNW/ - The Global Risk Institute in Financial Services (GRI) today announced the results of the first comprehensive study into the impact of low interest rates on the health of Canadian pensions. The study, which was undertaken in partnership with the Rotman School of Management at the University of Toronto, reveals that economic growth, improved business investment and increased employment are all vital factors if Canada's pension schemes are to remain viable as currently constituted. Furthermore, the study demonstrates that, in the absence of these factors, public pensions will need significant reform - and private schemes will require greater contributions from their members and sponsors for benefits to be maintained.
Commenting on the study, which covers all three tiers of the pensions sector, Dr. Michel Maila, President and CEO at GRI, said: "Recent debates about the current low levels of interest rates in developed economies are really just the tip of the iceberg. What lies beneath these low rates is ongoing anemic growth, low investment and weak employment. In terms of the real economy, the developed world is still "Waiting for Godot" - looking for a significant increase in investment and employment which continues to be elusive."
Dr. Maila continued, "The longer it takes for economic activity and returns on investment to revert to pre-crisis levels, the more acute the challenges in our pensions sector will become. The focus on low interest rates has obscured the real issue, which is the length of time advanced economies are taking to recover to their historical rates of economic growth and job creation. Given these research findings, it is only prudent risk management to prepare for the possibility of rates remaining low for a while longer."
NOTES TO EDITORS:
- About GRI: Founded by representatives from Canada's private and public sectors, the Global Risk Institute in Financial Services enables financial institutions, policy-makers and regulators to better manage the balance between risk and opportunity. Its mandate is the provision of applied research and education programs that build risk capacity and stimulate evidence-based debate for all those engaged in financial sector risk management globally. Over the past year, GRI has concluded research agreements with the Universities of Toronto, Waterloo and Calgary; McMaster University, the International Centre for Pensions Management at the Rotman School of Management, Toronto and La Fondation du Risque/Institut Louis Bachelier in Paris, France. Researchers currently working on GRI projects are drawn from around Canada, the United States, the UK and Europe. In Risk Education, GRI works with leading educators and experienced professionals from across Canada and further afield to enhance skills and build risk management capacity. www.globalriskinstitute.org
- About the "Low for Long" study of the pensions sector: conducted in partnership with the Policy and Economic Analysis Program (PEAP) at the University of Toronto's Rotman School of Management, GRI's research into the risks of a prolonged low-interest-rate environment considered the effects of low interest rates on all three tiers of the Canadian pensions system. The research used proprietary economic models developed by the PEAP to consider a variety of different scenarios agreed with GRI. The study examined the impact of these scenarios on the viability of pension schemes, including their administration, fees and the levels of contribution required from various stakeholders to ensure their viability. To obtain a copy of the report, please contact James Wood at GRI on the numbers above.
SOURCE: Global Risk Institute
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