david dodge : a sound pension system – handling risk appropriately remarks by mr david dodge, governor of the bank of canada, to the conference board of canada 2007 pensions summit, toronto, 10 may 2007. * * * good afternoon. i'm happy to be here to talk about the importance of canada's pension system. it goes without saying that a sound system of private pensions is important from the perspective of pensioners who rely on a given plan for their retirement income. for firms, a pension plan can help to attract and retain staff, and so the business community also counts on a sound pension system. and as a central banker, i know that a sound pension system is important from the perspective of economic and financial market efficiency. given the significance of our pension system, policy - makers in canada need to keep working on improving its operation. ultimately, it is crucial for all canadians that our pension system function as well as possible. but what is it that makes a system of private pensions function well, or not? as i see it, a key to answering this question is understanding how pension plans deal with risk, in all of its many forms. so today, i want to spend some time discussing private pensions and risk, and suggest what needs to be done to make sure that those who have to bear risk also have the right incentives to deal with it in the most appropriate manner. 1 i will focus on who is best placed to bear risk, and on how risk management can be better supported. risks and challenges let me start with a fundamental question : why do people save for their old age? essentially, people save during their working years so they can retire at some point and not suffer a precipitous drop in income and living standards. economists might put it somewhat less elegantly, saying that people save in order to smooth their lifetime consumption. in the absence of any kind of pension system, individuals, businesses, and society as a whole would all face a number of challenges and risks. i want to spend a few minutes talking about the challenges and risks from these three perspectives, beginning with individuals. first, individuals without a pension plan would have their personal savings as their only source of retirement income, aside from income from the publicly funded canada pension plan / quebec pension plan and the old age security / guaranteed income supplement. and so, individuals would naturally be exceedingly cautious with their investments, particularly as they approached retirement age. in short, individuals without pensions would likely be too risk -

good start. otc derivatives infrastructure second, otc derivatives infrastructure. earlier, i spoke of global regulatory reforms driving a revolution in the derivatives market. this has brought about new market infrastructure developments, and singapore has made significant strides in two key areas. the first area is clearing. • sgx asiaclear, asia ’ s first otc clearing facility, was established as early as 2006. • as counterparty to both buyers and sellers, asiaclear mitigates counterparty credit risk in otc transactions. • asiaclear ’ s value to the trading community extends to record and statement services, position netting, and cost savings for customers posting margins. • today, sgx asiaclear is the region ’ s leading multi - asset otc clearing house, with volumes exceeding 300 billion us dollars to - date. the second area is trade reporting. • just in december 2012, the depository trust & clearing corporation ’ s ( dtcc ) global trade repository established its asia - pacific global data centre in singapore. • the singapore location is part of its global trio of data centres, designed to support dtcc ’ s global trade repository services around the clock. • dtcc ’ s initiative will fill a key post - trade market infrastructure gap in singapore and the asia pacific region. • the industry will benefit from reduced connectivity costs and the greater convenience of reporting to a singapore - based infrastructure. these developments not only align us with global regulatory reforms, they allow us to strengthen our role as a derivatives and risk management hub in asia. offshore rmb the third area of opportunity that plays to singapore ’ s pan - asian strength is offshore rmb business. the rmb ’ s role in facilitating intra - regional trade and investment will only grow in the coming years. singapore is in a strong position to facilitate greater rmb - denominated trade and investment in the asean region. we are deepening liquidity, establishing key infrastructure, and working with industry to expand the range of rmb products and services in singapore. bis central bankers ’ speeches • in february this year, the industrial and commercial bank of china ’ s singapore branch was designated singapore ’ s rmb clearing bank. • just five days ago, mas and the people ’ s bank of china signed an enhanced bilateral currency swap agreement. this will enable mas to provide rmb liquidity to banks in singapore where needed. deep talent pool the fourth and final pillar supporting singapore ’ s financial centre is our deep talent pool. over the