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October 12, 2022

Canada Maintains Index Rating

Canada maintained its B rating and saw its index value in the 14th annual ‘Mercer CFA Institute Global Pension Index (MCGPI)’ increase slightly from 69.8 in 2021 to 70.6 in 2022. However, while Canada’s retirement system continues to rank well globally, “there are risks that employers and employees need to manage in the current environment,” says F. Hubert Tremblay, principal and senior wealth advisor with Mercer Canada. “As defined contribution pension plans continue to make up a greater part of Canadians retirement, turbulent markets, soaring inflation, and a higher cost of living are all impacting older workers that are transitioning to full or part-time retirement.” This makes it important for Canadians to make sound financial decisions to maximize the value of their available DC pension assets as they move toward retirement. “Employers can support this transition for their plan members by providing and promoting financial wellness tools and benefits to employees at all stages of their careers. The retirement industry also needs to support workers transitioning into retirement by providing good options to convert accumulated assets into retirement income, low investment fees, and helping future retirees understand how the Canada/Québec Pension Plans can be leveraged to deal with investment and longevity risks,” says Tremblay. Iceland had the highest overall index value (84.7), closely followed by the Netherlands (84.6) and Denmark (82.0). Thailand had the lowest index value (41.7).

October 12, 2022

Conventional Knowledge Challenged

The conventional knowledge that it is nearly always preferable for people to start saving and investing for retirement as early as feasible is now being called into question by research from the Journal of Portfolio Management. Retirement strategy is frequently based on the idea that earlier saving is always preferable, primarily because of the power of compounding. However, this assumption is frequently not measured against a useful standard, it says. Instead, a lifecycle model, in which rational people distribute resources across their lifespan with the goal of preventing significant fluctuations in their standard of living, would serve as a reasonable benchmark. After constructing and analyzing a ‘lifetime savings consumption model,’ the research concludes that most young people shouldn't actually be investing for retirement. For these workers, it is often necessary to spend all of their money when they are young and to begin saving for retirement only when they are in their middle years as over the course of their careers, most employees typically see significant salary increases.