Private pensions and government guarantees: clues from Canada
Date
2007
Authors
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Publisher
Cambridge University Press
Abstract
The Pension Benefits Guarantee Fund (PBGF) was established in the province of Ontario
in 1980, thus creating in Canada a rare opportunity for intranational empirical research on
the impacts of governmental protection on private plans and their participants. This paper
examines Canadian data on pension plans for effects attributable to Ontario’s government
guarantees for some plans. We find that significant variables related to an increase in the
number of pension plans in Canada are higher interest rates, a larger labour market, and,
consistent with the deferred compensation theory from labour economics, lower real disposable
income of workers. The number of members in pension plans is related significantly
to the same variables and also to tax rates and unemployment. The analyses show that the
Ontario environment for pension plans is significantly different from the rest of Canada. Those
plans covered by the Pension Benefit Guarantee Fund exhibit a lower degree of funding per
participant than do the remainder of the plans in the sample, supporting the argument that a
government guarantee is related to a moral hazard problem in Ontario pension financing.
Description
Cambridge University Press allows publisher's version to be posted to institutional repository after 12 month embargo period.
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Citation
Nielson, N. L. and David K. W. Chan, " Private Pensions and Government Guarantees: Clues from Canada," Journal of Pension Economics and Finance. Vol. 6, No. 1 (March 2007), pp. 45-66.