Most Canadian pension funds are banking on 7% annual returnsforever. Over the next few years, this unrealistic expectation will costthe respective governments and companies millions in shortfalls.In the USA, the California Public Employees Retirement Systemassumes it will earn over 7.75% annual returns. This false hope willresult in over $6 billion a year in lower than expected investmentincome, that will also have to be paid by the financially challengedstate (ie. taxpayers).Meanwhile, Thelma O’Keefe continues to quietly sock away 5% of herpaycheck each and every week and has no idea what all the fuss willbe about when she is eventually told her pension benefits will beslightly less than originally promised.Over 50 years ago, the average worker started to earn pensionbenefits and has been dreaming of working less, and golfing more,ever since. The Defined Benefit Pension Plan has been the rock of thisdreamy foundation and is certainly a costly beast to say the least.Once the auditors, actuaries, custodians, lawyers, administrators,consultants, performance measurement guys, trustees andinvestment managers have been paid for their services, is there littlewonder most of these retirement funds are running a little short.Yet , the primary reason most people fall asleep with even a slightmention of the words “pension funds” is due to the complexities andconfusion resulting from this cumbersome investment scheme.

Continue reading →