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The Global Risk Institute Reports Results of First Comprehensive Study on the Impact of Low Interest Rates on Canadian Pensions

NOVEMBER 21, 2013

Research Report

– 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, NOVEMBER 21, 2013. 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.”