Further to Robert Brown’s Sept. 19th article in http://www.evidencenetwork.ca/ on pooled pension plans, one of the advantages he comments on is what he calls “…pooling the mortality risk, resulting in a more accurate estimation of the groups’ average life expectancy.” (the “group” meaning pooled pension plan participants).
There it is a again – “mortality risk”. Swiss Re – in their report referenced in the Nov.1st blog posting, called it ”longevity risk”… and quoting them again, “getting it right is a major challenge for pension funds.” What I keep thinking is, what kind of health condition are we going to be in, as individuals in a pooled pension plan, to enjoy the “deep end of the pool” in our average life expectancy?
Getting back to the practical side, my colleague Marie Howes, Certified Financial Planner reminds us that pooled pension plans “must be large enough to operate efficiently, AND the fees must be low enough so that returns can be maximized.”
Marie Howes goes on to say, “This is the sticking point: Many investment managers/companies could offer pooled pension plans, but most will be tempted to charge fees which will not benefit clients. Unless there is legislative oversight of the maximum fees being charged, these plans will be just like group RRSPs with standard, relatively high fees for which Canada is noted.”
I’m sure in the 1880’s when Otto von Bismarck introduced the first pension plan concept he had no flaming idea of our current trending exposure to “longevity risk” in 2011.