In recent years, there has been a push within the global pension industry to find superior alternatives to the traditional Defined Contribution (DC) pension model. Pension experts and innovators are looking for ways to provide better lifetime benefits within a framework that remains appealing to employers. Currently, too many DC retirees do not enjoy a sufficient level of income security and bear an unacceptable level of personal financial risk.

In the context of workplace pension plans, one of the most promising solutions is pooling. Effectively, pooling is a strategy that mitigates risk for individual pension plan members by making them part of a large collective or “pool”. And there’s power in large numbers.

The ICPP leverages the advantages of pooling in two key ways:

ASSET POOLING: Any Canadian employer can join the ICPP. When they do, their members’ pension assets become part of a significant pool of assets received from all of our Participating Employers. This is advantageous because it helps keep investment fees lower, leading to better net returns. Better returns ultimately translate to greater retirement benefits for all of our members.

RISK POOLING: The ICPP is designed to use a Variable Payment Life Annuity (VPLA) as a key payout mechanism, which pools longevity risk among all of our pensioners. This sets us apart from a typical DC arrangement wherein an individual member must manage or mitigate their longevity risk on their own. That is, they must try to avoid outliving their savings. This can involve expensive financial advice and insurance products that can diminish their overall pension benefits. For members of the VPLA within the ICPP, payouts are based upon the experience of the group, and not the individual. This pooling of risk and experience ensures members receive a reliable pension for their entire lifetime.

The ICPP is not the first pension arrangement to implement pooling strategies. When we designed the ICPP, we looked around the world to find the very best elements of pension plan design. Pooling was a recurring theme championed by industry thought leaders and government regulators alike. Many proposed and successful plans worldwide are using pooling in different ways to optimize their member outcomes. Notable examples include:

  • Defined Ambition Plans (Netherlands)
  • QSuper Lifetime Pension (Australia)
  • University of British Columbia Staff Pension Plan

All of these plans have been lauded for their ability to provide superior pension benefits. In Canada, there are limited options for private sector employers who want to offer a robust lifetime pension without taking on substantial financial and fiduciary obligations. Through its use of pooling and other innovative design features, the ICPP can deliver superior retirement benefits within a fully outsourced, cost-effective solution.