The Commerce Times

Problems with our pensions

With an increasing number of issues regarding the state of Canada’s pension system, President Robert Howard of the Canadian Institute of Actuaries (CIA) voiced his concerns at an event hosted by the Economic Club of Canada last November.

Howard said that although Minister Jim Flaherty‘s announcement of the pension’s reform proposals in late October was a step in the right direction, the reform needed to go much deeper.

“We believe things have gone too far for governments to tweak around the edges of the problems. Minor adjustments and temporary fixes won’t help,” Howard said.

The retirement prospects of many Canadians have been negatively affected through the Canada Pension Plan’s (CPP) low interest rates, rising pension costs, volatile market yields and the recent financial crisis. With this in mind, Howard emphasized fundamental changes to be implemented immediately in order to safeguard the financial security of Canadians upon retirement.

Millions last year watched as the value of the savings in their RRSPs and Defined Contribution Plans melted away in the economic crisis. In combination with the market situation, employees who are currently working in organizations that operate on the brink of bankruptcy face the possibility of jeopardizing their retirement savings if their employer goes under.

One of the several core needs that Howard stressed was that Canadians need to put more Problems with our pensions Forget the economy; Canada’s aging population faces a crisis of another kind money towards their retirement. A study conducted by the University of Waterloo concluded that two-thirds of Canadians who plan on retiring in 2030 might not be saving enough to cover their household expenses during those years.

“A new environment for maintaining and strengthening pension plans must be created, where there is consistency in pension legislation across jurisdictions”

“As coverage of private sector workplace pensions continues to shrink, the potential for retirement income gaps has increased for many Canadians, and this is a serious public policy issue,” he said.

He noted that very few have the ability to save enough on their own, calling for wider pension coverage. According to the CIA, less than one in four Canadians in the private sector belong to a workplace pension plan, and many of them have no RRSPs or personal retirement savings. This would leave the majority of baby boomers to face the reality of a considerable drop in their standard of living or be left feeling as though they need to carry on working.

Howard maintained that pensions need to be on the national agenda, stating, “A new environment for maintaining and strengthening pension plans must be created where there is consistency in pension legislation across jurisdictions.” The CIA has been advocating for a national summit on pension reform for several years, where both provincial and federal decision makers would agree on a roadmap and a timetable on how they intend to improve the system.

Furthermore, due to the rise in life expectancies over the past several decades, he highlighted that Canadians require a greater amount of flexibility when it comes to the usual retirement age of 65, saying, “Today’s retirees expect to live longer and more actively than any previous generation.”

By allowing employees to continue working instead of retiring, employers can also reap the benefits associated with holding onto experienced and knowledgeable staff members. “These workers gain by continuing to earn and by contributing rather than drawing down their retirement savings,” he said.

Howard additionally supports the creation of innovative employment models that would allow Canadians to work part-time while collecting partial retirement benefits.

Finally, he encouraged an increase in the level of financial literacy among the public. By educating the public on the various risk factors associated with retirement – inflation, rates of return, and longevity, to name a few – greater number of Canadians would be able to estimate how much income would be necessary at various stages of their retirement period.

“More information should be made available to the public so they can clearly understand the risk factors around retirement and manage them effectively throughout their lives.”