The “Third Rail” of Pensions: Politics, Problems, and Solutions

Published on
February 14th, 2020
Duration
35 minutes

Pension Case Study: If It’s Broke, Don’t Fix It


The “Third Rail” of Pensions: Politics, Problems, and Solutions

The Expert View ·
Featuring Jim Leech

Published on: February 14th, 2020 • Duration: 35 minutes

Jim Leech, the former CEO of the Ontario Teacher’s Pension Plan – the third largest pension system in the world with nearly $200 billion in AUM – and author of, “The Third Rail: Confronting Pension Failures,” joins Real Vision to discuss the two major problems facing pensions in North America. Those problems are the incorrect assumption most pension planners made about human longevity and the sub-par returns that they have actually realized. Leech outlines the specific funding issues in both American and Canadian pension systems and details the daunting problem unfunded pensions represents for policymakers and taxpayers alike. He also supplies a few success stories from his experience as CEO of OTPP that serve as a potential roadmap to get unfunded pensions back in the black. Filmed on January 29, 2020 in Toronto.

Comments

Transcript

  • oo
    olga o.
    20 February 2020 @ 21:29
    The 'political pressure' is not there on the Boards of Canadian plans as the Boards are made up of banking and investment professionals. However, those very Board members are friends of the pension funds' managers and often turn a very blind eye on poor performance by the pension funds' managers. They allow the mark up of the private equity funds liberally to hide the underperformance by equities/bonds/FX/quants in the aggregate performance, for example.
  • SH
    Stephen H.
    20 February 2020 @ 01:22
    Great interview, straight from the horses mouth. More of this!!
  • LK
    Leo K. | Contributor
    19 February 2020 @ 15:54
    Jim Leech is an incredibly gifted communicator with tremendous experience in the pension industry. He clearly explains the thorny issues around pensions and why we need to bolster our failing retirement systems. I highly recommend you watch this entire clip and read his book, The Third Rail, which he co-authored with Jacquie McNish. Leo Kolivakis Publisher of Pension Pulse
  • BT
    Brett T.
    18 February 2020 @ 06:52
    Interesting about the math of pooling longevity in favor of defined benefit plans. Up until now most content had been a blanket response in favor of defined contribution. Additionally, the comment on civil disobedience at the end reminded me of what has happened in Japan where pensioners are committing crimes with the intention of being caught so they can go to prison and be fed plus have warm housing and a bed because they can't afford retirement.
  • VJ
    Ved J.
    17 February 2020 @ 02:38
    really well done. great job RV!
  • F
    Floyd .
    17 February 2020 @ 00:05
    Excellent video! Great history of issue,well presented facts,unbiased summary of problem AND presented solutions that are currently being used. These types of videos are why I subscribe to RV.
  • BC
    Britton C.
    16 February 2020 @ 01:35
    Good video. Nice contrast. I really like this website a great deal. Their must be a Millenial picking the intro music. Doubt that type of music is appreciated by anyone but a Millenial. I'd rather listen to a vacuum cleaner going over a heat vent, than listen to that : ) Stay neutral on the music.
  • RC
    Ronald C.
    15 February 2020 @ 23:39
    Very rational, informative and apolitical.....not like many of the RV interviews
  • GB
    Glenis B.
    15 February 2020 @ 20:42
    Some years ago I worked for a large forestry company in NZ. OTPP purchased the rights to the trees and of course the profits from the harvest would go to them. I thought it was smart, a profit in the future to pay for future pensions. I couldn't understand why the NZ government wasn't investing in our own assets. At the time I also got talking to one of the investment managers (can't remember if he worked specifically for OTPP), he specialized in forestry and travelled the world looking for big assets to buy for the pension fund he worked for. This would have been 15 years ago, his problem was that he had mega-billions to invest but there were limited investments. That could only have got worse as other pension funds piled in.
  • xx
    xyz x.
    15 February 2020 @ 03:22
    Firstly, I wonder how the inflation adjustment toggle he talks about will fly in practice. Is he saying that if the fund is under funded then payouts will stop being inflation adjusted to basically stem the bleeding? From a manager perspective, yes this is a wonderful modelling element but for retirees they may not have the stomach for it if it plays out. Also, some of those pooled pension that are talked about (the 3 unis joining their pension plans), this is a nice way to pool capital but their plan members lose bargaining in terms of negotiating the terms of the pension so yes more cash to play with on the investment side for the long term at the cost of present day bargaining power. Good trade off? Time will tell. Seems like a lot of torturing of the pension model variables through time and still kicking the can down the road.
  • CB
    Chris B.
    14 February 2020 @ 19:37
    One great thing about being a Canadian is that banks up here are not allowed to invest in private equity firms, as was explained by Jim Leech. So there is no Glass-Stegall law here. But this forced the pension for Teachers' to invest in private equity themselves, and learn how to do it, saving big money for the plan along the way. Teacher's have the benefit of professional management making the correct assumptions, so that retired teachers can actually enjoy their retirement and not have to worry about it. Glad I'm Canadian!
  • JC
    Joel C.
    14 February 2020 @ 16:03
    great insight from a practitioner... as i watch the evolving narrative about this series... it occurs to me that perhaps there are answers already around the world of how to solve this - outside North America... i know i know, who'd have thought the investing world stretches outside one continent... for example, Australia and their Super Funds ? Can we have a deepdive into that as i think it will shed much light on what will be required politically to get this done. OK Boomers?
  • CM
    Craig M.
    14 February 2020 @ 15:56
    At the 18:20 timeline he is suggesting pooling my 401k and IRA with the defined benefit group to enhance the overall returns ? Is this correct ? These are the same clowns that have blown up the State Pension plans with bad investments and unrealistic returns while lining their own pockets.
  • KL
    Kim L.
    14 February 2020 @ 14:34
    This is a really great interview. I haven't read the book, and am wondering how does this relate to pensions like the Canada Pension Plan (CPP), which is taken out of every Canadian's wages. Most citizens don't understand how CPP works, and they don't even consider that money as part of the retirement savings..rather they see it as a loss to their savings.
  • NR
    Nathan R.
    14 February 2020 @ 12:33
    Excellent “plumbing” interview. Love the PE disintermediation piece. Canada: for once nice guys finishing first...
  • sm
    sam m.
    14 February 2020 @ 11:58
    Having worked at an IB ... these guys investing on their own ... still dumb money. But apparently they can simply just employ their own but OK ...go for it. Enough idiots to still eat what you kill.
  • sm
    sam m.
    14 February 2020 @ 11:48
    I was an RBA employee ... the discount rate is just 4.5% ... https://www.rba.gov.au/publications/annual-reports/rba/2017/financial-statements/note-14.html Most other countries are deluding themselves. As are 99% of defined contribution employees -> and this is 99% of the problem.
    • sm
      sam m.
      14 February 2020 @ 11:53
      If you are not assuming 4.5% or so you are just deluding yourself.