Today's economy

This is how your pension will probably change

By Kevin Press,

Comments (20)

The debate about Canada’s pension system comes down to four key ideas. Here’s what you need to know about each of them.

This is how your pension will probably changeA report on the National Summit on Pension Reform landed Friday. Organized by Canada’s Public Policy Forum, the event provided an opportunity for industry leaders to assemble and talk about what comes next for Canada’s pension system. (The Province of New Brunswick, Sun Life Financial and Morneau Shepell contributed to the event as Summit Partners.)

Two things stand out from the report:

First, despite what you may have read, our national pension system is not in crisis. It could be better, certainly. But Canadians can rest easy knowing that a basic level of retirement income is provided for by the very well-managed Canada Pension Plan (CPP) and Old Age Security (OAS) program. Our system is admired around the world.

Second, there is political momentum behind efforts to improve the pension system. This is driven largely by recognition that Canada’s baby boom generation, as it enters retirement, will place a heavy burden on the system. This (along with volatile capital markets and low interest rates) has contributed to fears of a looming disaster.

Leaders at the summit discussed four big ideas. The event’s report provides a useful summary of how pensions across Canada — those provided by government, employers and via personal savings — are likely to change.

1. Risk is going to be shared differently

The goal is sustainability of the system, according to the report. That means you and I are going to be required to take on greater risk (we will have to save and invest more), and our employers and governments will lessen their exposure. This probably doesn’t mean lower CPP and OAS payments. But it will mean that both private and public sector employees will get less from their workplace plans than previous generations have. Many of us will retire later.

2. Pension plan design changes will grow more common

Pensions have not been known for flexibility in the past. Expect plan design changes on a more frequent basis as boomers move through the retirement income system. And watch for greater transparency in that process. For this to be successful there will have to be real balance between the interests of management and labour. Brush up on your financial literacy skills so that you understand what these changes mean to you and your family.

3. There will be more ways to save at work

This aspect of Canada’s system was headed in the wrong direction. According to the report, about 39% of the country’s paid workforce has an employer-sponsored pension plan. And that national average overstates the reality among private sector workers by a wide margin. “Overall saving rates in Canada are low, and there is a definite need to facilitate growth in Canadians’ workplace savings if we are to sustain an acceptable standard of living for the growing ranks of retirees,” reads the report. The recently introduced Pooled Registered Pension Plan is designed to address this. Ottawa created a regulatory framework for the new plans, and has left it to the provinces to decide how (and if) they want to implement. Quebec was the first to step forward with what that province calls the Voluntary Retirement Savings Plan.

4. CPP coverage could expand

We could see higher CPP payments and/or a new way for Canadians to top up their payout with individual contributions. There’s considerable debate on expanding CPP. Those for it point to the strength of CPP and ask why we wouldn’t want to rely on it more heavily. Those against it say it’ll increase taxes for consumers and businesses (because the money has to come from somewhere). Could go either way.

I would call it a safe bet that Canadians will have to save more personally if they hope to see the kind of retirement income previous generations have earned thanks to government- and employer-sponsored plans. The question for policy makers will be how to cushion that blow in the form of creative plan design and saver-friendly tax incentives.

I’m optimistic.

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Dodie on

Lets look at this from the Baby Boomers perspective. Baby Boomers have contributed heavily to CPP, with matched contributions from employers. Part of our national debt is money owed to CPP by our government. They borrowed heavily from OUR pension funds and now are crying because there may not be enough funds,….Give me a break, lets have an investigation into where the heavy contributions made by baby boomers have really gone.

    Mac on

    Yes and they seem to forget what they are hauling in with there gold plated pensions.

Brian Poncelet,CFP on

Why CPP is in trouble.

In a nutshell, benefits are going to be delayed.

It is sort of telling Passengers On the Titanic The survivors will reach the other side of the Atlantic in a rescue boat.

This is not they signed up for.

K on

The problem is that it may not be possible to save enough to ensure the ability to retire. Mutual funds and other defined contribution plans appear to mainly benefit the banks and financial advisors. As someone who does not have a defined benefit plan behind them and is almost 65, despite doing my best to save – my mutual funds have not increased the way the financial advisors projected. I don’t believe this is a viable model for anyone rather than the wealthy. The rest of us will be opening cans of cat food for dinner.. While banks and financial advisor do well.

    Janice on

    When I was introduced to a financial advisor at my bank, it was always understood that they offer good advice, (a good resource) going with the flow of ups and downs. You can’t expect them to be “right on”. Our responsibility is to take charge of our financial well being and be ready to handle expectations. I am no expert but I am very proud of my frugal — albeit satisfactory lifestyle at 61. Please stop resorting to slamming advisors, banks, government, because we felt jilted. Take the consequences of not being on track earlier, change your thought pattern and be diligent about cash flow.

David Home on

Tax Free Savings Plans are available to all to shelter savings from tax due on interest and other appreciations.
$5,000 p.a. from age 30 to 65 at 5% = $5,000, If increased by 5% p.a., the otal will be close to $1,000,000. And tax free when withdrawn. What a windfall!!

    Janice on

    Correction on good advi$e…TFS plan allows $5500. per year😉

      old and broke on

      And what will a million dollars be worth in 35 years

Pat Carson on

\There is no point imagining that many Canadians will enrol; in voluntary savings plans. They will contribute only as much as they must and rely on taxpayer welfare to support them in their old age. Let’s get real. Raise compulsory contributions from all working people and their employers ASAP.

Owen marks on

Increase cpp contributions…the vast majority of Canadians haven’t a clue or the resources on to how to navigate the shark infested waters of private pension investments

Lew Auerbach on

This is terrible news. Why should individuals be required to take on extra risk and companies and government less? Companies and government can afford it more than we can, and they can also pool risks more effectively and efficiently. Not only that, taking on more risk is very stressful psychologically, as well as financially. It can only have a negative effect on the overall health of Canadians. It meakes no sense at all!

Paul Williams on

Reblogged this on POW'S LETTER and commented:
A report on the National Summit on Pension Reform landed last Friday. In his blog, Today’s Economy, Kevin Press provides a terrific summary of the report, allowing more time for the rest of us to golf or sleep, similar pastimes in my view. Mind you I would add a fifth point. Aging Canadians will work longer and differently. Some out of necessity, others because they want to. And I would hypothesize — no one has any idea how this will evolve as boomers age. This phenomena could make the discussion about retirement savings rates a mute point. Perhaps this point wasn’t raised at the Summit. I don’t know. I wasn’t there. But it should have been.

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