Canadians' private retirement savings drop

The evidence is clear that many Canadians today aren't doing enough to plan for their retirement. What happens when these folks approach retirement and are faced with the enormous cost of their own health care and that of elderly parents who go into nursing homes near the end of life?

There's a sign at last that Finance Minister Jim Flaherty is at least aware of the issue.

Here is an edited article on pension reform from the CBC website:
________________________________________________

Only about half of all employed Canadians who filed tax returns put money into private retirement plans in 2008, a slight decline over 1997, according to a study released Friday by Statistics Canada.

The Statistics Canada study comes two days after Finance Minister Jim Flaherty announced public hearings over the next five weeks on improving Canada's retirement income system. The study came as the federal and provincial governments begin looking at ways to reform the country's pension system, widely viewed as inadequate to support a population with a growing proportion of older people.

On Wednesday, Finance Minister Jim Flaherty announced a series of hearings on Canadians' views on whether the country's retirement income system needs to be improved, and, if so, how that should be done.

Those will include public town hall meetings, roundtables and online consultations over the next five weeks.

There are three options to be discussed at those consultations, and when the federal and provincial finance ministers meet to discuss pensions in May:

• Create a Canada Supplementary Pension Plan in which Canadians would automatically be enrolled to increase their savings.
• Expand the current Canada Pension Plan to produce a higher level of pensions.
• Change some of the restrictive rules in pension regulations and tax laws that would allow the financial services industry to offer products to encourage people to save for retirement.

Keith Ambachtsheer, director of the Rotman International Centre for Pension Management at the University of Toronto, told CBC News the Statistics Canada study shows the need for Canadians to participate in the government's pension consultations.

"If we're going to make some significant changes," he said, "you do need a lot of population buy-in. This can't be a bunch of politicians or experts deciding by themselves what's best for the population."

Ambachtsheer said there is a precedent. When concerns were raised in the 1990s about the solvency of the CPP, consultations between Ottawa and the provinces led to a decision to double contributions and the plan is now financially stable. Those most at risk of not having enough in retirement, he said, are the 75 per cent of middle-income Canadians who aren't in private savings plans that automatically deduct contributions from income.

RRSP contributions fall
Statistics Canada said there was also a decrease in the share of employed tax filers who contributed to a registered retirement savings plan during the decade. In 1997, 41 per cent of employed tax filers participated in an RRSP; by 2008, the proportion had declined to 34 per cent. At the same time, the share of employed tax filers participating in employer-sponsored pension plans remained stable at 32 per cent.

Pension-plan shortfall alarm

An article from the Windsor Star on pension reform:
_________________________________________

By Ellen Van Wageningen

Fran McLean spent 47 years doing office work for the calcium-chloride processing plant in Amherstburg, Ontario, that was eventually owned by General Chemical Canada Ltd. When the company went bankrupt in 2005, McLean had been retired for seven years. A few years before the bankruptcy, it came to light that the company pension plan was underfunded.

Despite union and government involvement, the shortfall was never made up, says Debbie Fields, area director for the Canadian Auto Workers.

McLean saw her company pension cheques fall from $2448.90 a month to $1941.39 two years ago. Now she has a notice saying she will soon get only $1,000 a month, the amount covered by the Ontario Pension Benefits Guarantee Fund.

"It's not so easy to buy a new car now," she says matter-of-factly of the drastic drop in her retirement income. She put aside other savings while she was working, and she can still count on her Canada Pension Plan and Old Age Security cheques, she notes.

Defined-benefit pension plans, like the one McLean had with General Chemical, have been the gold standard for workers. But when those plans are underfunded and companies get into financial trouble, retirees aren't getting what they were supposedly guaranteed.

Troubled pension plans are just the tip of the iceberg, says a new report on the changing Canadian workplace released by TD Bank Financial Group.

As of 2008, less than 28 per cent of Canadian private-sector workers had employer-sponsored pension plans. Most of these are now defined-contribution plans, for which payouts are much more uncertain.

So the burden of saving for retirement is shifting to individuals, but many are not taking advantage of tax-sheltered plans, says the TD report authored by economists Don Drummond and Francis Fong.

Any pension reform should increase incentives to save for middle-income earners, who are most at risk of not being able to maintain their standard of living in-retirement, they conclude.

But York University finance professor Moshe Milevsky and co-author Alexandra Macqueen caution that even those who save 20 to 50 times what they will need annually in retirement still run the risk of running out of money before they die.

Guaranteed pensions are expensive, but they provide the certainty the elderly need, they write in the latest issue of the magazine Policy Options.

"Hope, expectations and estimates 'in all probability' aren't enough.”

The Canadian and Ontario governments have been studying the issue since before the recession but have yet to act. Proposals include increasing CPP contributions, expanding tax-sheltered savings plans and new rules to better monitor private pension plans.

The solution may come too late for McLean, but she and other local workers who are losing income because of failed pension plans are sounding the alarm.

Retirement a top concern at 'thinkers' conference

From the CBC website - an edited article on the same subject:
_____________________________________________

Canadians are looking at a future of working beyond the traditional retirement age and stashing away more savings in order to maintain their standard of living, the former Bank of Canada governor said in a speech Saturday.

David Dodge was speaking to federal Liberals who have gathered in Montreal for a three-day public policy conference, featuring what the party says are 53 "leading thinkers and doers."

"Middle- and upper-income Canadians now in their prime earning years are both going to have to save more and expect to retire later in life than they'd hoped to do," Dodge said.

Baby boomers could be a burden
Demographics and labour expert Rick Miner predicted a shortage of skilled labour and a heavier burden on the health-care system.

"The time for action is now. Without change, this is our future. It's not going to be a pleasant one: millions of people without jobs and millions of jobs without people."

Miner said by 2017, retired baby boomers will leave society with higher health-care costs and a smaller tax base. At the same time, he said Canada's workforce will not be trained for a new knowledge economy.

Among his proposals, Miner said university students should attend classes through the summer in order to graduate sooner, and Canadians should do a better job of integrating immigrants, people with disabilities and aboriginal people into the workforce.

Party seeking fresh ideas
This is the third conference of its kind in the last 50 years. On opening day of the Canada at 150 conference, Liberal Leader Michael Ignatieff said Canada needs to invest in education and training, even as it tries to tame a record $54-billion deficit.

Financial Time Bomb Lurks

It's time for everyone to wake up to the massive problem facing Canadians, whether you are a boomer or a child or grandchild of boomers. The boomers have to worry about having enough to retire on. The heirs of the boomers have to worry about paying for their parents' and grandparents' care AND their own future.

A spokesperson for the Harper government was asked recently what the Conservative party's strategy was to deal with this issue.

The dismissive reply was "Canadians are more concerned with the recovery of today's economy."

My interpretation of that remark is that they have no long range plan but are more concerned with putting out fires. It's time to start thinking long term - the chickens will come home to roost.

Finally the issue is gaining attention in the media. Here is an edited article from the Vancouver Province:
_________________________________________________

By Ray Turchansky

Christopher Ragan, associate economics professor at Montreal's McGill University and senior adviser to the federal finance minister, says an aging workforce foreshadows reduced tax revenues and skyrocketing health-care spending, from 2020 to 2040 in particular.

"We have to recognize there is a need to adjust," said Ragan. "We have to either raise taxes or lower spending or come up with ways health care is less expensive. Or we increase debt so we put problems on future generations. This challenge is completely solvable, but we have to take action soon."

The issue is that the retirement of baby boomers - those born between 1946 and 1962 -begins in two or three years, and for the next 30 years we'll see massive declines in two labour forces - the percentage of women having children, and the percentage of our population that's working.

"As we get older we get sicker, and health care costs a lot of money; and we have benefits like Canada Pension Plan and Old Age Security.

He said the average spending in health care currently is $2,500 a year for each person up to age 65; $5,000 a year per person age 65 to 74; $11,000 a year per person 75 to 84; and $23,000 a year per person over 85.

"One-third of health-care spending per capita happens in the last year of life."

In addition to needs from an aging population, health care is a rising cost due to technological advances. From 2020 to 2040, Ragan said, health care and elderly benefits will cost $56 billion a year more than now, accounting for a 10-percent increase in government spending by 2040.

So do we increase tax revenue, decrease spending, or borrow and go into more debt? [Ragan says there are some options:]

• You could entice people to work longer, by delaying access to CPP until age 67 or 69.
• You could increase the productivity growth rate, but that's tough to do with a declining labour force.
• You could increase taxes.
• You could cut health-care spending but that "opens up a Pandora's box."
• You could cut spending other than health care, but "it's very difficult politically to cut anything."

Ragan declined to suggest which solutions he would choose.

"You probably need a suite of unsexy policies that together work to produce an environment where there is competition, innovation and drive, with quality labour force, incentives to invest, and low corporate-tax rates."