Retirement a luxury many can’t afford

Retirement Savings

By Lana Payne

This article was published by Telegram on November 1. 2014. To see this article and other related articles on their website,click here.

For them, Freedom 55 is someone else’s dream. They can’t even imagine Freedom 75.

Last week, there was yet another report and another dim view on retirement savings for Canadians.

The Conference Board of Canada’s Survey of Non-retirees and Retirees in Canada: Retirement Perspectives and Plans found that the majority of Canadians don’t feel very secure about their retirement income.

Indeed, a full 60 per cent do not believe they have saved enough to retire in comfort. Not surprisingly, women and lower-income earners were even less likely to have saved enough.

Shockingly, one in five Canadians reported that they will never retire. In addition, nearly one-third of those surveyed said they didn’t know when they’d be able to retire. Stagnant wages are coming home to roost.

The survey also found that over 40 per cent of employers surveyed said their employees are overly optimistic with respect to their assessment of when they will be able to retire.

That is rather astonishing, considering the dreary outlook so many Canadians seem to hold about their ability to retire in comfort. Yet even Canadians’ low expectations about retirement are considered optimistic.

Considering that a vast majority of employers offer little or no workplace pension plans, they could do a lot to change this picture, if not voluntarily then by forcing them to do so through an enhanced Canada Pension Plan (CPP).

The common narrative is that even with significantly improved Canadian pension health, employers say they can’t afford pensions, especially defined benefit plans which offer more security for people in retirement.

And what we are seeing is a growing trend by employers to renege on their obligations made through workplace defined benefit pension plans.

This is happening despite the fact that those plans are in extremely good shape.

According to a survey by Aon Hewitt (a risk management consulting company), the health of defined benefit pension plans in Canada is at its highest solvency ratio since September 2007. Funding ratios for Canada’s largest pension funds reached 97 per cent in 2013.

But employers are still using the financial crisis of 2008-09 to demand not just changes to pension plans, but to exclude new employees from decent pension coverage and, in turn, a defined retirement income.

This means the retirement crisis is about to get bigger as young people are told in a multitude of ways that they are on their own when it comes to retirement security, that they should not expect the same as their parents, that they should lower their expectations all together.

It does not need to be this way.

Generational pension/retirement inequity is contributing to the predicted pension crisis and has been a major concern, for many years, of the Canadian Labour Congress. The country’s largest labour organization has consistently advocated for an expanded CPP as one way of ensuring retirement security for all Canadians.

Many pension and retirement experts have agreed that this is the best way forward.

Some 13 million working Canadians do not have a workplace pension plan.

Murray Gold, a pension specialist with an Ontario law firm, has noted that pensions are not as good as they were 20 years ago.

“We are heading for a retirement income crisis,” he says.

But clearly knowing this means we can take steps today to mitigate the crisis.

David Dodge, former governor of the Bank of Canada, has also touted the expansion of CPP. In a report earlier this year, he said “an enhanced CPP would represent a retirement savings vehicle that is superior to many corporate defined-benefit plans and group or individual savings vehicles.”

Increasing CPP “would be an efficient measure to increase household savings and to provide for higher retirement incomes,” noted Dodge in the report Macroeconomic Aspects of Retirement Savings.

Yet despite this, the federal government continues to ignore the mounting evidence that action — real and considerable action — must be taken today to fend off the retirement crisis around the corner.

CARP, the Canadian Association of Retired Persons, also supports enhancing CPP and notes the majority of Canadians agree. Indeed, the vast majority of CARP members see it as a ballot box question.

“We need federal and provincial governments willing to work together on a national solution to the national retirement savings problem,” CARP said in a statement.

It is clear that this won’t happen as long as the Harper Conservatives are in power.

We may as well add retirement income crisis to their legacy of neglect. Harper has been quoted as saying we won’t recognize Canada when he is done.

But damage can be undone, just as a new federal government can address the looming retirement crisis.