Friday, May 13, 2011
LIFE WITHOUT A SUSTAINABLE LIFETIME PENSION IS NOT SIMPLY TOUGH - IT IS UNCONSCIONABLE
LACK OF PENSIONS A GROWING CONCERN
It will be the 'biggest social issue we're going to be debating in our society'
Talking about pensions may seem deadly boring but it will likely emerge as a much bigger issue in the years to come.
That's because of several colliding factors - aging baby boomers, low interest rates and weak stock market returns.
Plus more companies, especially small and medium-sized businesses, don't offer pension plans. Those that do are switching from defined benefit programs, with guaranteed . payouts, to defined contribution plans, which are based on accumulated contributions.
A number of pension plans have been damaged severely by the last recession or corporate bankruptcies. Nortel pensioners have engaged in a high profile public fight for their benefits, which have been compromised by the company's demise.
"Pensions will be the biggest social issue that we're going to be debating in our society over the next 10 years:' said Rick Robertson, an associate professor at the Ivey School of Business.
Statistics Canada reported this week that about 6 million Canadians were in registered pension plans as of Jan.1, 2010. Of those, 3.02 million work in the public sector as bureaucrats, nurses and teachers.
Nearly 60 per cent of working Canadians have no company pension, StatsCan says
Those working in the private sector know fewer employers offer pension plans, and more companies are switching to defined contribution plans from defined benefit plans. Some only offer defined contribution plans to new hires.
Air Canada is trying to switch newemployees to these cheaper plans. Its 3,000 pilots, who have reportedly balked at the idea. are in the midst of a ratification vote on a tentative deal. Statistics Canada says nearly 60 per cent of working Canadians - or 12.3 million peopIe - have no company pension.
While government supports are in place the Canada Pension Plan for all working Canadians, Old Age Security for all Canadians and the Guaranteed Income Supplement for low-income Canadians - it's the middle earners who are feeling the pinch.
A defined benefit plan has one huge advantage: people don't go to sleep at night worried when they have retired," said Robertson. ''It leads to very different lifestyle choices."
With these latest statistics, he believes it's only natural for governments to try to pull back on pensions, though it would lead to a very tough fight with unions.
"There are some pretty powerful unions.
Think of the teachers. Everyone says, 'Take them on: but as soon as somebody's kid doesn't have a place to go that day, then they say, 'Just solve it;" Robertson said
Any move to introduce pension changes would not solve immediate fiscal problems, but some U.S. states, where unions are weak or non-existent, have already done it
Newly hired state workers in VIrginia are now on a retirement savings program instead of the traditional defined benefit plan.
Paul Forestall, senior partner at Mercer, a human resources consulting firm, believes there will be growing pressure on governments here to move toward defined contribution plans.
The Statistics Canada data shows about 143,000 government workers were on defined contribution plans in 2009, compared with 2.8 million on defined benefit plans.
''Pensions are a big part of compensation in the public sector. Changing it won't be easy;' he said, adding public sector employees like teachers also make significant contributions to the plans. Given the decline in manufacturingjobs, Forestall is not surprised public sector workers now make up more than half of those with pension plans.
Ultimately, any changes may be dependent on government action.
While Finance Minister Jim Flaherty has expressed concern Canadians aren't saving enough for retirement, efforts to reform CPP have been thwarted by certain provinces, notably Alberta
Flaherty has floated the idea of a privately administered, voluntary program designed to help mainly the self-employed and workers at small businesses.
"I think it would be a positive change if implemented, but I'm not sure it will be enough to address coverage," Forestall said
If government reforms offer tax advantages to companies or make it easier to offer pensions, companies may start to offer defined contribution plans, though probably not defined benefit plans, he added.
Vanessa Lu, Business Reporter
Toronto Star
May 13, 2011
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2 comments:
Nice post
THE 2nd 30 – 40 YEARS – LIFETIME RETIREMENT (55 – 95)
HOW WE GOT FROM THERE TO HERE
Large corporations began to dismantle defined benefit plans over 20 years ago.
The first demographic group who were targeted were those in their mid 50's. Why? Because it is costly to fund a lifetime retirement with 10 years left (i.e. 55 - 65). This left those affected with only one choice - do it on your own. A $100,000 / year retirement income requires $2,000,000 in capital assuming a 5% rate of return on the capital - that's $200,000 / year in retirement funding. That sum speaks for itself. Most corporations did not start the retirement funding early.
Once a corporation removes a guaranteed pension for all intents and purposes an employee becomes self employed. The only advantage anyone has financially in a large institution is the opportunity to receive a pension and retire with peace of mind. Once you are on your own you are acting as an independent entrepreneur and not an employee. Loyalty cuts both ways.
That's the background that has resulted today in 60% of all working Canadians not having a defined benefit pension plan which would allow them to sleep soundly throughout the 30 - 40 years of their retirement (from as early as 55 to as late as 95 - look around you in your own family.)
Ask public servants why they work for the government - their defined benefit pension.
Financial planning was done by the corporation - not the employee. Employees budgeted – income – expenses – that’s it. The employee traded his or her time for a guaranteed lifetime income at retirement.
Employees bought financial products for their individual accumulation purposes but had very little certainty whether they would be able to transition their savings capital into a sufficient and sustainable lifetime retirement income.
That brings us to 2011 where 14,000,000 boomers in Canada are preparing to retire and are inadequately aware of which financial advisor can replace the corporate financial management who once upon a time designed and implemented their defined benefit retirement plans.
That's where we are today.
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