“Collision between retirement hopes and financial reality” may be newsmaker of the ‘20s

Writing in the Globe and Mail, columnist Ian McGugan predicts that the “gradual unravelling of the world’s retirement dream” may be the biggest crisis we face in the ‘20s.

While we aren’t seeing violent protests in the streets over pensions, as in Chile and to a lesser degree, France, McGugan suggests that while Canada’s retirement system is not yet broken, there are signs of problems.

The Canadian retirement system, he writes “is now only slightly better than Chile’s in terms of overall design, according to an annual survey of retirement systems in 37 countries, conducted by human-resource consultants Mercer and academics at Monash University in Melbourne.”

The survey, called the 2019 Melbourne Mercer Global Pension Index, says there is currently a $2.5 trillion gap between “existing retirement savings and future retirement needs in Canada.”

The causes of the gap, writes McGugan, include “shrinking access to  corporate pension plans” and “rock-bottom interest rates,” which mean savers must take on riskier investments to grow their retirement pots.

Other factors, he notes, include the growing number of retirees and the fact we’re all living longer. “Many people now live into their nineties, but most still want to retire in their early sixties or even earlier. This means their savings and pensions have to support them for more years, but without any increase in contributions,” he writes.

Let’s unpack these four important points. Workplace pension plans are not as common as they used to be – so many of us must fund our own retirements. Low interest rates make it hard to grow your savings. The number of retirees is growing, which is a strain on government benefits, and we’re generally all expecting to see our 90^th birthday or beyond.

McGugan says there is no magic solution for these problems.

He notes that the fixes out there include “raising official retirement ages by four to six years” so that people work longer, promoting great retirement savings rates, and “accepting that retirement incomes may have to be substantially lower than they are now.”

For instance, people may have to accept that they’ll be living on 60 per cent of what they earned while working, rather than the conventional target of 75 per cent. Making changes to government retirement programs so that they pay less and are thus (in theory) more sustainable will be “political dynamite,” he writes.

McGugan’s analysis seems very accurate. Let’s recall the reaction to two federal government proposals. Years ago, the federal Tories proposed delaying payment of OAS, moving the starting point from 65 to 67. There was a lot of protest over this decision, which ultimately was reversed by a subsequent government. And when that subsequent government moved to increase – gradually, and over decades – the cost of, and payout from, the Canada Pension Plan, many organizations called that an unfair tax hike. So you can lose politically by cutting or by improving benefits.

The bottom line is that even if you do have a workplace pension plan, you need to be thinking about saving for retirement in order to augment your future income. If you don’t have a plan at work then you need to come up with your own. Don’t be overwhelmed – you can start by making little, automatic contributions to your savings, and dial up how much you chip in going forward. But you’ve got to put up that first dollar.

A great retirement savings plan, the Saskatchewan Pension Plan  allows you to put away up to $6,300 each year, within your available RRSP room, in a defined contribution plan.  Your savings will be grown by professional, low-cost investing until the day comes when you need to draw on that money as retirement income. And then, the SPP offers an array of options, including providing you with a lifetime pension. Be sure to check them out.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Canada’s pension system cracks the world’s top 10 – but there’s room for improvement

When it comes to government retirement benefits for its citizens, Canada is certainly world class.

According to The Wealth Professional, Canada has the ninth best pension system among 37 developed countries – this due to a recent ranking by the Melbourne Mercer Global Pension Index.

However, Dr. David Knox, author of the study, sees a few problems for Canada, despite its relatively high standing.

“Systems around the world are facing unprecedented life expectancy and rising pressure on public resources to support the health and welfare of older citizens. It’s imperative that policy makers reflect on the strengths and weaknesses of their systems to ensure stronger long-term outcomes for the retirees of the future,” he states in the article.

One of the problems in having a system where retirement savings plans are looked upon as “wealth,” rather than a pot of money earmarked for the future, is that people tend to dip into the account early, Dr. Knox tells The Wealth Professional.

In plainer terms, people look at their retirement savings account, which may contain tens of thousands, if not hundreds of thousands, and dip into it. That’s because, the article advises, “people feel more financially secure and are more likely to borrow (from) their retirement savings pre-retirement.”

Having those relatively fat retirement savings accounts also makes people more comfortable with debt, Dr. Knox states in the article.

“As the wealth of an individual grows, whether it be in home ownership, investment portfolios or their retirement savings, so does their comfort with amassing debt. The evidence suggests on a global basis, for every extra dollar a person has in pension assets, their net household debt rises by just under 50 cents.”

There’s another problem, the story notes. While Canadians have amassed a lot in retirement savings, there seems to be a discrepancy between the amount saved, and what they will actually need to fund their golden years.

“Canada currently has a US $2.5 trillion gap between existing retirement savings and future retirement needs,” states Jean-Philippe Provost of Mercer Canada in the article. “This gap reflects not only demographic forces, but also the combination of limited access to corporate pension plans for workers and a challenging long-term investment environment. Women are particularly affected by this savings gap,” he tells The Wealth Professional.

So the two takeaways here are this – try to avoid dipping into your retirement savings before you have retired, and be aware that you’ll need to save more than you have saved thus far.

The Saskatchewan Pension Plan has one-little heralded feature that prevents cookie jar raids. Funds contributed to SPP are “locked in,” meaning that you can’t access them until you start your retirement. Your retirement cookie jar remains sealed until that wonderful day when, freed from the bonds of work, you want to turn those savings into retirement income. Be sure to check out SPP today!

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22