“Seniors are a crucial source of spending power in the economy. They tend to stay close to home and patronize local businesses, and they need to have spending power in order to keep the economy trucking along. As the country gets older we could face a growing problem of inadequate demand unless we have a way of supporting seniors’ income.” – Jim Stanford
By John Devine
The sorry state of retirement preparedness in Canada can be told by the related statistics, such the one that reveals more than 60 per cent of Canadians don’t have an occupational pension of any type.
They are the ones who will have to rely on personal savings financial experts say are too low and government programs that are being deemed insufficient to meet retirement needs.
When discussion turns to how to get more private sector employers to offer employees a pension plan, or to protect those that remain, Jim Stanford, an economist with Unifor, offers an additional set of numbers.
“The reality right now is that if you are in a union in Canada, you have an 85 per cent chance of having some kind of workplace pension. It might not be the best, it might be a defined contribution (DC), but you have an 85 per cent chance of having some kind of pension, Stanford told ARIA recently.”
“If you are not in a union, you have a 25 per cent chance of having some type of workplace pension – and the debate there is not over DB or DC, it’s over any type of pension at all.”
Unions including Unifor, the Canadian Labour Congress (CLC), and the Canadian Union of Public Employees (CUPE) are strong advocates of an enhanced CPP to bolster retirement income for Canadians pension experts warn will face a precipitous drop in their standard of living due to insufficient retirement income; CUPE’s Paul Moist and the CLC’s Ken Georgetti both addressed this during interviews with ARIA.
Most at risk, pension experts say, are middle-income Canadians making between $30,000 and $100,000; those making more have the financial resources to take advantage of savings vehicles like RRSPs, while those making less will see their income largely replaced in retirement through government pensions: CPP, Old Age Security (OAS), and the Guaranteed Income Supplement (GIS).
Enhancing CPP benefits has been under discussion for a number of years, and advocates were surprised when the most recent round of discussions between the country’s finance ministers ended with a gulf between the provinces/territories, and the federal government.
“The CPP is the most secure, efficient and portable pension that we have. It is a defined benefit pension, it is indexed and it is nearly universal. It is absolutely the best way to fill in the gaps for middle-class working people when they retire,” he told ARIA.
A number of reports and studies are showing the positive economic impact of retirees having enough income to continue to be consumers, including this one from Conference Board of Canada. A study by the Boston Consulting Group, Defined Benefit Plans: Strengthening the Canadian Economy, also identified the economic value of adequate retirement provision.
“Seniors are a crucial source of spending power in the economy. They tend to stay close to home and patronize local businesses, and they need to have spending power in order to keep the economy trucking along. As the country gets older we could face a growing problem of inadequate demand unless we have a way of supporting seniors’ income.”
Enhancing the CPP alone won’t be enough to solve the retirement crisis, says Stanford, adding that the other legs of the traditional three-legged stool of retirement (personal savings and occupational pensions) are still needed. But a bigger and better CPP will, over time, make a very important difference, he says, although perhaps not as much for those on the cusp of retirement.
“You can’t snap your finger when you are 60 and suddenly fix the problem … but the longer we wait to start making the changes, the more people will be falling through the cracks of the system.”
When it comes to the debate over the types of vehicles for accumulating retirement income, Stanford says changes to address risk and longevity issues can be made, “without throwing out the baby with the bathwater.” And, he says, the focus on the financial sustainability of pensions is misplaced. It should be on productivity, he maintains.
“What we really need to do is ensure those of us still working are producing to the full extent of our capacity, and that means keeping labour force participation up and increasing productivity.”
To that end he is against measures to keep older people in the workforce longer, saying that is unfair to older and younger workers alike. And he bristles at suggestions that having younger people pay higher CPP contributions to support older workers in retirement represents a type of generational unfairness.
“That kind of rhetoric seems absolutely backwards to me. The generational injustice that is being done is denying young people a shot at a good job, with benefits, including a pension. Making the baby boom generation work even longer is going to make that problem worse, not better.”