Wednesday, November 2, 2011

The pension problem

Unless retirement is on the horizon for you, you may not be paying much attention to the matter of income when your working days are over.

By nature, actuaries and pension fund managers aren't inclined to be alarmist. Maybe we need them to become noisier in order to get our attention on a looming problem that will confront most Canadians.

• Statistics Canada says six out of ten Canadians have no formal pension plan.

• Canadians are not making sufficient use of the tax-deferred saving power of RRSPs, having undercontributed by more than half a trillion dollars, according to StatsCan. Decades of middle class wage stagnation, and an absent sense of urgency among young and middle-aged workers, are among the causes.

• On average, Canadians each contribute $2500 annually to their RRSP, accumulating $60,000 by retirement. Using a standard formula, that translates into a monthly income of $250.

• The defined benefit pension plan, a standard benefit for 50 years from almost every employer of substance, is going the way of the Dodo bird, replaced by voluntary plans funded mostly by employee contributions.

• Even companies that have traditionally provided defined benefit plans are moving to much less generous defined contribution plans for new hires. And of course pension commitments that were thought untouchable have been known to evaporate, as former Nortel employees and others have discovered.

• The Canada Pension Plan is paying retirees about $500 per month, on average. Add in another $500 and change in Old Age Security benefits.

The RRSP, CPP, and OAS add up to about $1280 per month, or $15,360 per year. If that's your total income, you would also qualify for the Guaranteed Income Supplement, which will get you to $16,320 total income.

That's less than half the average wage, so it represents a big change in lifestyle, even considering that former work-related expenses will cease.

For comparison purposes, the Canadian government's Low Income Cut-off level for individuals, which is often cited as a "poverty line," ranged in 2009 from $15,301 to $22,229, depending upon community size.

In fact, it now appears certain that poverty among the elderly will be widespread, perhaps epidemic. The human and economic costs of this will be severe. Without exaggeration, extreme hardship awaits.

No wonder that there is growing envy, unfair as it may be, of public servants and unionized workers who are entitled to pension benefits that look comparatively generous.

We are about to test the famed Canadian social conscience.

1 comment:

  1. I wonder what it will take for people to actually 'hear' this message. Very alarming.