Jim Leech, chief executive of one of the country's biggest pension plans, uses an old Russian folk tale to sum up the spirit of Canada's pension debate: A farmer is upset over the loss of his most productive cow and, given one wish, he'd like his neighbour's cow dead too.
The call for pension reform is similarly shaped by envy, anger and fear, says Leech, head of the $130-billion Ontario Teachers' Pension Plan, in his new book Third Rail:Confronting our Pension Failures. Those emotions make it easy for Canadians to ignore a situation that has been strained by meagre personal savings, low interest rates, unpredictable market returns and longer life expectancy.
But we shouldn't turn a blind eye, argues Leech, who co-wrote the book with Globe and Mail journalist Jacquie McNish. Over the next two decades, more than seven million Canadians will retire from work and, unless major change occurs, many people are in for a big shock.
Currently, more than 60per cent of Canadian workers aren't even a part of a workplace pension plan and Canada's savings rate is a paltry 5.5 per cent, down from 20 per cent from in the 1980s. Canadians should not rely too much on the Canada Pension Plan, Old Age Security and Guaranteed Income Supplement because it could potentially put more burden on taxpayers and Ottawa, which already pays out some $36 billion, he says.
Cases in New Brunswick, Rhode Island and the Netherlands illustrate a mix of reform focused on risk-sharing, funding rules and regulation, among other things, related to defined benefit and defined contribution plans.
A big focus of your book is that it is easy to turn a blind eye to pension reform. Why?
It's an issue that is very easy to kick down the road and not worry about for a while. The book was written in a style to engage people and, particularly young people, who are educated and somewhat bewildered or confused or terrified when economists and actuaries and accountants bring out tables.
Why should people be interested?
It's unlikely characters who came up with solutions. They weren't economists, they weren't actuaries.They were palliative care nurses; a venture capitalist out of Rhode Island; a Conservative premier in the province of New Brunswick. I mean these are unlikely allies. And yet they were able to sit around a table and deal with the problem and come up with a satisfactory solution.
The book title is Third Rail, a term you say is used quietly by politicians who don't want to touch this hot topic.
The third rail refers to the electrified rail on the subway system. If you touch it, you get killed.
Did you ever personally witness this reluctance?
This isn't about pointing a finger at anyone. This is an issue that deals with sustainability over a long period of time. Not only the sustainability of existing pension plans,but the income levels of the tsunami of retirees that is going to hit us in the next two decades, and the challenge they're going to have in having enough money to carry forward.
Why did you write the book?
I decided to write it just before I retire because the debate is heating up. What we wanted to do was to be a thought-provoker in the debate.
And how did you connect with Jacquie McNish?
When you're a neophyte like me and you decide you want to write a book the best thing to do is go find someone you can partner with who knows what they're doing. So that was how we found her. She jumped at it, but I think she had a bunch of reservations like how candid can we be, is this going to end up going through 16 committees to censor and that sort of stuff. Of course we had none of that.
The book pushes bold reform. How is it being received so far?
It hasn't been out long enough for the sides to start forming here. (Based on Tuesday's book launch), we had some people who were probably from the far right of the spectrum and they didn't like our ideas; we had some from the far left and they didn't either. I said to Jacquie, I think we hit the right tone.
Switching tracks but similarly bold commentary, do you think the idea of having at least three females on corporate boards will fall on deaf ears?
We can do the comply or explain regime, but as we looked around the world, that just hasn't worked. You haven't moved the needle on female participation on boards in those jurisdictions. It's only moved when you finally brought in some requirements.Our view is let's learn from those jurisdictions.
In 2009, I was leaving a meeting with the then-governor of the Bank of Canada (Mark Carney) and he said,oh Jim by the way, this is going to be low for long, guide yourself accordingly. That was the best insight I had. I don't see any reason it isn't going to continue for some period of time.
Back to pension reform, how do you get everyone to agree to tackle the issue?
The brain power is there. it's really a matter of having the will to say let's take action now. We need to engage everybody. People think that pensions are a subject for old people. It's not. It's a subject for all people.
I'm not in the business of predicting where political minds will end up going, but certainly if I use (the launch audience) as a gauge it was overwhelmingly in favour of enhancing CPP. The provincial ministers are getting together this week in Toronto. I hope they are listening. Maybe that's a market we should go sell the book to.
You are retiring in January. What's next?
I've basically told everybody talk to me in the new year when I've had a chance to decompress.I've got a couple of trips planned. I'm going to Costa Rica with all my family and then I joined an expedition with a number of business leaders and some soldiers to ski to the North Pole in April.
*This interview has been edited and condensed.