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The Pension Conundrum?
Stefania Moretti of QMI Agency reports in the Toronto Star, The pension conundrum:
Recent
calls to boost the Canada and Quebec Pension Plans will further burden
business owners and push wages down as much as 2.5%, according to a
new report.
The Canadian Federation of Independent Business said
it has studied recent proposals from the Canadian Labour Congress and
others to up CPP and QPP benefits and premiums.
The CLC proposal, it found, will force pay down as much as 2.5% in the long term.
With
Canadians more indebted than ever, retirement funding has become a
hot-button issue, with many claiming the CPP and QPP aren’t enough to
sustain quality of life, especially for private sector workers. The
average retired Canadian man gets $6,800 a year from the CPP, while the
average woman gets just $4,700.
Canada’s
finance ministers have received a flurry of proposals on how to revamp
the system ahead of their meeting on retirement income in December.
“One way or another everybody has to save more or we’ll be facing a crisis,” said Jeff Atkinson, a spokesperson for the CLC.
The
CLC has proposed gradually doubling the benefits plan with premium
increases of 0.47% in each of the next seven years, which works out to
an additional $3.57 per week for a worker earning $47,200.
But
employers, who already have the burden of funding employment insurance,
would have to match the new premiums and that will drive wages and
even job growth down, the CFIB said.
And the spending power that comes along with increased savings won’t be fully
realized for 40 years, it said.
"The
other important lesson of this exercise is to shed light on the fact
that the bulk of the negative economic impacts would be the result of
increases to employer-paid premium costs," said CFIB chief economist
Ted Mallet.
Catherine Swift, president of the CFIB, said the real problem is the gap between private and public sector pensions.
"Taxpayers
struggle to save for their own retirement, in part because they are
paying dearly for the pensions of civil servants,” she said.
The CFIB says that if premiums must be raised, then they should be raised on the employee side only.
"As
employers pay 60% of Employment Insurance premiums compared to 40% for
employees, perhaps employees should pick up more of the cost of CPP,
leaving employers' premiums at the current level,” she said.
CLC
President Ken Georgetti said unionized employers and the public sector
have done their part to ensure better retirement income and now it’s
time for the private sector to step up to the plate.
“If you
follow Swift’s argument to its illogical conclusion, she would argue
that everybody should be as poor as the poorest private sector worker.
That’s not the goal,” he said.
Employers who already offer a
pension through an Registered Retirement Savings Plan could transfer
some payments to the CPP since it is tax deductable and offers a better
return for workers, he added.
I have to agree
with Ken Georgetti on this one. The goal isn't to impoverish everyone,
but to increase retirement security among as many workers as possible in
both the public and private sector.
And here is an additional
thought. Maybe the gap between private and public sector pensions
exists because the latter are better managed. Yes, public sector
pensions are more generous, but I happen to believe that for the most
part, they're better managed plans.
Finally, Susan Eng, VP Advocacy at CARP, sent me Joe Friesen's Globe and Mail article, Number of seniors living in poverty soars nearly 25%
The
number of seniors living in poverty spiked at the beginning of the
financial meltdown, reversing a decades-long trend and threatening one
of Canada’s most important social policy successes.
The number of
seniors living below the low-income cutoff, Statistics Canada’s basic
measure of poverty, jumped nearly 25 per cent between 2007 and 2008, to
250,000 from 204,000, according to figures released on Wednesday by
Campaign 2000. It’s the largest increase among any group, and as the
first cohort of baby boomers turns 65 next year, could place increased
pressure on families supporting elderly parents.
Economists say women make up as much as 80 per cent of the increase in seniors poverty. Armine
Yalnizyan, economist at the Canadian Centre for Policy Alternatives,
said more women than men were living close to the poverty threshold
before the financial crisis took hold in 2008, and, because their
retirement savings tend to be smaller, were more likely to slip below
the low-income cutoff. Men over 65 are also twice as likely as women
over 65 to have a job. By January, 2009, there were 23,000 fewer women
over 65 working than there were seven months earlier, while the number
for men changed very little, Ms. Yalnizyan said.
“My guess is
that the majority of women [who are still] working over 65 are not
carrying on with their career, but trying to have a little more comfort
in their lives. They were probably never too far above the poverty
line, whatever line you pick. When those jobs are gone, more of them
are struggling to make ends meet,” Ms. Yalnizyan said.
The
rise in poverty among seniors poses particular problems for their
adult children, who will be expected to bridge financial gaps for their
parents while supporting their own families. This so-called “sandwich
generation” is often caught with the twin pressures of having children
in higher education and parents requiring additional care for failing
health, according to Laurel Rothman, co-ordinator of the Campaign 2000
report card on child and family poverty.
She said the trend is
particularly hard on new Canadians who have sponsored their parents to
join them in Canada. Many of those parents have been able to work for
only a few years in Canada before retirement, and so receive very little
in Canadian pensions.
“In Montreal, Toronto and Vancouver,
ethno-racial newcomers are particularly a concern,” Ms. Rothman said.
“We see it all the time at Family Service Toronto, people who come here
that are sponsored [by their family members]. It may be someone who
puts in five or 10 years of work [in Canada], but they don’t get full
Canada Pension Plan. ... And their cost of living has gone up.”
The
jump in poverty among seniors is unusual because Canada’s success in
tackling this issue has been cited as perhaps its single most successful
policy intervention. According to figures cited in a 2009
Conference Board report, Canada’s rate of seniors poverty was as high
as 36.9 per cent in 1971. The government, in an effort to tackle the
problem, had a few years earlier introduced the Guaranteed Income
Supplement and the Canada Pension Plan. By 2007, the rate of poverty
among seniors had plummeted to 4.9 per cent, before rising to 5.8 per
cent in 2008.
The Canadian data are at odds with what’s happened
in the United States, where the poverty rate of 9.7 per cent among
seniors did not change between 2007 and 2008, despite the financial
collapse. Ms. Yalnizyan said that could be explained by the time lag
between the beginning of the economic upheaval in the United States and
its eventual impact on Canada.
The Campaign 2000 report also
says 9.1 per cent of Canadian children were living in poverty in 2008,
down slightly from the year before, but nowhere near the goal of
eliminating child poverty set by Parliament in 1989.
Susan Eng sent me her response to this article, which she sent to the Globe and Mail:
The
25% increase in poverty among Canadians 65-plus is no surprise. That
despite being warned, governments have not acted to prevent it is the
real story.
The dramatic
decline in seniors’ poverty rates over the last 20 years is largely
attributed to the CPP, OAS and GIS. But the CPP has “matured” –
retirees have just started receiving their full entitlements after 40
years in the workforce – so no more improvements from this source. OAS
and GIS have not kept pace with the true increase in cost of living –
the indexing formula excludes food and energy costs.
The
differential impact on women is also not news. In and out of the work
force with child rearing and caring for their parents or spouses, the
women now over 65 had lower career earnings and more likely, no
workplace pension.
Instead
of helping, government rules actually exacerbate the problem. Applying
late for OAS, GIS or CPP, limits you to11 months in retroactive
payments – of your own money. Eighteen percent of women over 65 who
live alone live in poverty. It didn’t help that the OAS spouse
allowance for those aged 60-64 was not available to them.
Where’s
the money to increase OAS and GIS to come from? The $2 billion saved
when the Afghan mission ends, one or two jet fighters and their
maintenance contracts, fundamental restructuring of health care
delivery– take your pick. But the ignoring the issue won’t make it go
away. Thanks for the story.
Canada's finance ministers can no longer
ignore this problem. There is no pension conundrum, only pension
poverty which will get worse over the next decade. In fact, I had a
conversation with a colleague of mine today and we chatted about
how quantitative easing (QE) may be the only option, but it will
exacerbate the divide between the financial economy and the real
economy. It's great for banks, hedge funds, and private equity funds,
but it remains to be seen whether the wealth will trickle down to the
working class. In the meantime, pension poverty is getting worse and
policymakers need to implement policies that will protect society's
poor, elderly and most vulnerable from the vagaries of Casino
Capitalism.
»
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Read somewhere that the "average" person managing their own retirement choices in 401k/IRA type plans trails the return of the pros by about 3-5% points annuallized. While many of us on ZH can do much better than that, not everyone has the ability or the time to succeed at investing. IMHO they should not be punished for this in retirement just so the Wall Street sausage factory can squeeze a % of assets entitlement out of their funds while also stealing their money manipulating various aspects of the markets.
Well said, Winisk... The future lies in taking personal control of our financial futures and learning to be a generalist. Not in "trusting professionals" - as our parents' generation was taught to do.
Forget for a moment the schemes, the cradle-to-grave idealism, the legislation, the promises and the beautifully-legislated safeguards.
The entire idea of growing a pension pot through high returns from the same investments that everyone else is making is manifestly unworkable. The numbers just can't work. Ponzi, yes.
I'll predict this, now: almost all public and employer pension schemes will become progressively further and further underfunded first to the point where they veer toward "pay today's benefits with today's contributions" and then toward outright default.
From "The Ascent of Money" (Niall Ferguson), re: Chile's pre-1973 state pension system:
"What had begun as a system of large-scale insurance had simply become a system of taxation, with today's contributions being used to pay today's benefits, rather than to accumulate a fund for future use. This 'pay-as-you-go' approach had replaced the principle of thrift with the practice of entitlement..."
Add to that the undoubtedly generous pension payouts now being expected, compared to the total employee/worker contributions and, more generally, to their and their economies' productivity and we have a BIG freight train of a problem coming around the bend...
OPT OUT! Let me opt out of any and all government social security 'services'
I find myself becoming less compassionate for those who bought into the Ponzi plan with full faith and couldn't be bothered to question it. I continually point out to my friends and family the challenges that lay ahead. The bullshit fractional reserve system, the unsustainable pension plans, the all knowing government, the con artists that manage the mutual funds, union thugs, and hoards of self-interested groups wanting a bigger piece of the pie. It's a mess. Yet they have no inclination to even put forth any thought to reckon with it all. It's mind boggling how much faith they have in the system even after all the fraud that has been uncovered as we lurch from crisis to crisis. When reality hits, they will all complain and lash out at anyone to absolve themselves of any responsibility. No one and everyone will be to blame when it fails to deliver. I don't have the answers but at least it won't come as a shock and will have moved a few degrees closer to a self reliant lifestyle that will hopefully give my family a decent life. I refuse to be a babe in the woods dependent on some government or pension manager for my survival. It's scary that people hand over that much power to complete strangers.
Somehow I think we'll reenter the union strike era real soon if thing continue this way.
Ever heard of the pension promise? They are not handing power to anyone. When you go to a doctor, you trust that they will do everything in their power to help you get better. Same concept applies here. Workers who are paying pension contributions trust that the pension promise will be kept and that will have enough to retire in their golden years. Sometimes I read traders on ZH and I feel like saying ''get your head out of your asses!''. People are not glued to their Bloomberg screens all day trading. They are working at their jobs and want to know that their pensions are well managed. Do not impose your personal views on the rest of society who are not as interested or as tuned into financial markets.
I understand that. Trust should be earned. The managers of pension plans have not done much to gain my trust. We wouldn't be talking about this now if they had done their job now would we. If I go to a doctor and he fails to cure me with his remedy or I come out feeling worse. Guess what? I won't be going back. I'm not glued to any terminal. I will scrape by with hard work and resourcefulness, not with clever trading strategies.
-100.000.000
Get the government out of my pocket !
Pensions make you a slave, for example I worked in a country for 4 years, now I moved to a different country, in 5 years I will probably move again, untill I am 50 I will probably be living/working in 5 countries, and how am I supposed to collect my pesion later ?
+ 1000.000.000
it all sounds like it's the retired people own fault that this is happening!
It still amazes me that the once responsible aren't jailed or hanged yet.
I can only hope the day will come that people start shooting down banksters. And whenever somebody kill's one, they get a bounty premium and a medal for doing so.
counting on?
I pay 55% taxes on my salary. THAT is enough to keep 2 immigrant families alive and even to breed further.
I'm not only counting on it, I'M DEMANDING IT!
As we speak i'm storing all my empty glass bottles. Add petrol, ether, some cloth and I'M READY TO PROTEST PEACEFULLY if they dare to take that.
Sure I have extra nesteggs. BUT THAT'S WHY IT'S CALLED EXTRA.
And when I die, I want to leave money for my kids to. I don't want to spend it all in those 20 to 30 years I might have left after my career.
Anyone counting on anything from a government deserves to be screwed. Freeze grasshoppers freeze. Natural Selection Bitchez.
Public pensions are managed better than private one's? How could that be Leo? They are managed by the same firms. You have hit all the bullet points of an advocate of public pensions. Women get paid less, minorities, etc. etc. Public pensions are outsized because of compliant politicians. The solution is a reduction of their benefits. It will happen, because, contrary to your rosy predictions of the last year, there is not enough cash. Nothing you say will change this fact.
Let me explain something to all of you who simply do not understand. Public sector pensions, especially the large ones, can reduce fees, invest in the best public and private funds in the world. There is no question in my mind that we need to pool retirement assets together and have them managed by professionals at public funds. The alternative is to allow each person to fend for themselves, which basically ensures more pension poverty (and higher social and medical costs) down the road.
Leo, I've watched you gradually coming round to the realisation that the entire pension system, predicated as it is on unattainable returns, is one big Ponzi scheme...
But you refuse to allow for falling living standards, something that everyone in western countries is beginning to find inevitable and unavoidable. And now you quote arch-trade union NDP zealot Ken Georgetti:
"CLC President Ken Georgetti said unionized employers and the public sector have done their part to ensure better retirement income and now it’s time for the private sector to step up to the plate."
How can you quote such a self-interested economic dinosaur?
The public sector sucks up wealth, vacuums up capital and saps the economy of initiative and enterprise.
Unions interfere with the marketplace, eliminate lower-wage jobs, raise prices with government-protected labour cartels and re-direct wealth into the pockets of the already well-off.
Only the at-cost, non-unionized private sector employer actually creates jobs, creates wealth! Forcing employers to contribute to employee pensions at all simply destroys potential jobs and absolves employees of the responsibility of saving for their futures...
Well said, damn you! The truth hurts.
Whoever junked you can eat my shorts.
Canada has the same problems that we have in regard to promises made and soon to be promises not kept.
The retirement question is one avoided or treated with whimsy, it seems. When in fact it could possibly be one of the largest financial/social problems we will need to deal with in the near future. Based on the population pyramid, the populations of China and all "developed nations" are in a constrictive phase. This indicates less young and more older persons. Thus, while it may seem whimsical to suggest these oldies will be left to wallow in the sewers of our cities, I think it unlikely that this is the route that will be taken. These older persons vote in large numbers, and if the actions of the Baby Boomers in the past are any indication of what they will do in the future, then we can expect to see all persons younger than the boomer generation required to pay for the living expenses of these boomers with no pensions, no savings, no clue, and a life long inclination to make someone else pay for their mistakes.
If we were to do a simple math exercise for a moment. Based on the US census in 2000, there were 20 million persons reaching retirement by now. 30 million more will reach retirement in another 10 years. If it costs 35k per year to support their existence, then we can expect to be presented with an annual bill of 1.75 trillion USD. This would mean that each employed person would need to pay out an additional 13,500 USD in taxes to support these retired persons. Now this 13k is regardless of your income level. Current data suggests individuals paid 1.03 T in taxes in 2010. Thus, we would need to pay 175% more in taxes to fund this bail out of the over 65.
I would suggest it might be in the interest of those of us not reaching retirement age in 10 years, to try to seriously consider what will or can be done to assist these prospective retirees with their finances, so we will not have to pay for their existence. Possibly the only answer is to shield yourself from the coming pull on your purse strings, how this might be accomplished...I do not know.
i would say those 55 and over and not yet receiving a pension payment are those who are in the biggest trouble in this massive pension ponzi scam.......those 45 and younger should be able to adjust and be more likely to make it out whatever is deemed best option......anyone in their 20s should demand NOT to give one penny of their money to the pension ponzi scam.......private sector taxpayer VS. public employees pensions, anyone willing to take bets on who will be left holding the bag of worthless IOUs
"Pension poverty", now there's a newly coined phrase. We old folks have done ourselves in by our own device. The world over...