Creaking pension system is failing Canadians

Only one in five private-sector workers belongs to an employer pension plan and just one-third of households are saving enough to cover basic expenses in retirement.

This article was originally published in the Toronto Star, to visit their website, please click here

When Canada’s finance ministers meet this week in Whitehorse to discuss our national pension system, they will have the opportunity to create a plan of action that ensures no Canadian worker will have to retire in poverty.

Canada’s pension system is inadequate and lags behind other advanced industrial countries in providing decent income security for retired workers. It’s time to catch up.

Retirement security shouldn’t be an ideological or a partisan issue. Retiring with dignity is something we should all be entitled to – whether we’re unionized or non-unionized, whether we work in the public sector or private sector. On this matter, there is broad consensus. Political parties, premiers, the trade union movement and CARP have all urged pension reform so that more Canadians can have fair, sufficient and secure retirements.

We have seen consensus and desire for change because so many people stand to benefit from pension reform. Similarly, if things are left as they are, an increasing number of Canadians will face an uncertain future in retirement.

Right now, 44 per cent of working people have no retirement plan or RRSP. In the private sector, only one in five workers belongs to an employer pension plan. And only one-third of Canadian households are saving enough to cover their basic expenses in retirement.

Pension funding issues, bankruptcies and the lack or loss of personal savings have, unfortunately, left more Canadians to rely solely on Old Age Security and the Canada Pension Plan in retirement. Those retirees, who receive an average of $500 per month, are living in poverty.

It is important for governments to recognize that over the next 30 years, the percentage of Canadians over 65 is expected to double. The influx of baby boom retirees, coupled with a higher life expectancy, will put unsustainable pressure on our retirement system – and on the next generation of workers.

As retirement costs rise, we can expect the quality of post-retirement benefits to decline, with the onus for retirement savings moving from employer to employee. For example, we are already seeing many workplaces move from defined-benefit pension plans to defined-contribution pension plans.

In defined-benefit schemes, employers usually assume the risk if the fund is not at a sufficient level. And when workers pay into a defined-benefit plan, they know exactly how much they will get out at the end. The inferior defined-contribution plan is a “no promises” plan – the only thing definite about these plans is how much a worker pays in. What a worker gets upon retirement is entirely dependent on markets and investment practices. And if the markets take a dive – like they have recently – employers are not on the hook to backstop a defined-contribution plan.

Across the country, workers are already confronting pressure to move to riskier pension schemes. In Sudbury, workers at Vale Inco have been on strike for five months, hoping to prevent defined-contribution pension plans from being imposed on new hires.