This paper discusses the pros and cons of establishing a system of indexed bonds as a means of assisting employers in the event that governments (federal and/or provincial) should require them to adjust pension payments under the pension plans for inflation. The main body of this paper is divided into three parts. The introduction describes briefly the mechanics of indexed bonds, the way inflation may affect the cost of indexed pensions, and, hence, the reasons why indexed bonds are being considered as a means of offsetting such inflationary impacts. It also notes the role of pension funds in the financial system in Canada. The second part appraises the possible impact of indexed bonds on the economy generally, on financial markets, and on government operations. It also briefly reviews the experience abroad with indexed bonds. The third part deals with the conclusions derived from the discussion. In addition, there are two annexes. One of these provides an estimate of the possible demand for and supply of indexed bonds. The other comments on the risk that with indexed bonds, public debt servicing might become less predictable.
|Date of creation:||1979|
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