A report released by the Alberta Federation of Labour last week (It IS Broke – So Fix it! www.afl.org ) last week is the latest call to enhance the retirement security of all Canadians. It demonstrates clearly the declining number of workers who have a workplace pension, and the inadequacy of private pension savings
Over 65% (and that includes some HSAA members) have no workplace pension beyond the Canada Plan [CPP]))
Of those, the proportion in defined benefit (DB) plans (pension based on years of service and average salary) has been declining, to be replaced by defined contribution (DC) plans. The benefits of the latter depend on market performance, and the financial crash of 2008 has demonstrated clearly the inherent risks. If you are lucky enough to retire at the peak of a market run-up, good for you. If you were planning to retire in 2009, you have likely delayed your plans.
Private workplace pensions (DB) were designed for workers who would spend their entire career with a single employer; hardly the case any more. Even if you moved from one employer with a plan to another, the pension itself was not likely to be transferable. Depending on how long you were in the job, you may have had the option of having your contributions returned with a small amount of interest, or to stay in the plan to draw a small pension on retirement, but based on those early earnings. Small pensions cobbled together will inevitably be a fraction of the benefits accrued in a single plan.
Then there are Registered Retirement Savings Plans (RRSPs) Like DC plans, these depend on investment performance, and your employer may, or may not, be making a contribution. Add to that the fact that individual investors lose a substantial amount of investment return to investment fees, and the RRSP option becomes even less attractive. Not surprisingly, those at the highest income levels are most likely to contribute.
The CPP brings together the best of all worlds. You take it with you from employer to employer. The employer contributes to your pension plan, and because it is such a large invester, the plan benefits from investment fees that are a fraction of what you will be charged as an individual. Furthermore, it is a DB plan, and so provides certainty. You can calculate your benefit based on years of service and average contributions. The CPP does not have the funding problems of many other workplace plans; it has been calculated to be able to meet its obligations to pensioners for at least the next 75 years.
The one shortcoming of the plan is the fact that it provides a benefit only to the YMPE, or Year’s Maximum Pensionable Earnings, which currently sits at $47,200, and is designed to pay 25% of the average lifetime earnings to that maximum. Under this formula, the maximum benefit is only 11,210 per year, and the average annual benefit is only $6023.
Studies across the country have concluded that the Canadian Pension system needs to be fixed, to ensure that workers can retire with dignity. To that end, finance ministers across the country, with the exception of Alberta’s Ted Morton, agree that an enhancement of CPP is necessary. They will be meeting in Kananaskis in December to discuss ‘modest’ improvements. The labour movement has been advocating for a phased in approach to double CPP benefits. Ted Morton says seniors should just sell their homes to finance their retirements.
The board of HSAA fully supports the approach of enhancing the CPP, and we encourage all members to contact their MLA’s to tell our government to get with the program. The changes won’t be immediate, and for most of our members who are members of the Local Authorities Pension Plan they will not make a difference. But for those who depend on DC plans, or those who do not qualify because they are casual or part time workers, and for our family members who do not have access to a workplace pension, improving the Canada Pension Plan may make the difference between a retirement in dignity, or one in poverty. Tell Ted Morton and your MLA that your kids deserve a solid retirement plan.
