Thank you very much, Mr. Chair.
Welcome here. It has been a very good discussion so far, and I just want to turn the discussion a little bit to something that was referenced to us as a finance committee earlier in our study. One of the themes that we as a committee have heard is the idea of calling for publicly funded insurance or backstops of pension plans. Insurance in general is something we can all agree is good for people to have. In fact, we Canadians gain comfort from having our homes and our cars insured, and we all, to varying degrees, make use of health insurance.
But I have a few observations concerning the development of plans, the goal of which is to insure pensions. From what I have been reading and have been able to learn about this idea of a pension guarantee fund, I would say that the development of this type of a plan brings with it a very unique set of circumstances and challenges. For example, a guarantee fund could provide a disincentive for employers in financial difficulty to properly manage their pension plans to control risks if their pension liabilities would be covered, an example of moral hazard. A plan sponsor could engage, in fact, in riskier investment practices without bearing downside risk, which would increase its incentives to take on such risk while potentially increasing the cost to guarantee the fund.
We've also heard the concern expressed that the creation of such a fund would lead to the inappropriate subsidization of weak sponsors at the expense of strong ones. A risk-based premium would be perceived to penalize most of the plans that are vulnerable and for which the protection scheme would be sought. Ultimately it could contribute to a plan wind-up or exacerbate the challenges of the sponsor in financial difficulty as it would impose additional costs.
Finally, it is also my understanding that the experience with these types of plans has been problematic. In fact, existing guarantee funds in the U.S., the U.K., and Ontario all have significant deficiencies and could require taxpayer funds in order to meet their obligations.
So having said all of that, I'd like to ask Dr. Whitehouse a couple of questions. Are there any jurisdictions that have managed to address the issues of moral hazard with respect to a pension guarantee fund, and if so, what are the characteristics of the country's pension and retirement income system that led it to be able to do so?