Simmering pension crisis comes to boil

TheStar.com – Opinion – Simmering pension crisis comes to boil
Published On Wed Oct 21 2009.   By Carol Goar Editorial Board

Canada’s first pension crisis crept up on the nation.

When Ottawa’s chief actuary warned 13 years ago that the Canada Pension Plan was heading for insolvency, most citizens were caught off-guard. They’d heard rumours the national retirement benefits fund was unsustainable, but they had no idea how stark the reality was.

This time, everybody knows there is a crisis.

Employees have seen their workplace pensions deteriorate. Investors have watched their nest eggs melt. Baby boomers have been forced to rethink their retirement plans.

There is a second difference between the two predicaments.

The first one had a straightforward – albeit expensive – solution: Jack up contribution rates.

Former finance minister Paul Minister did that in 1998, implementing a steep five-year increase in premiums. Today, according to the chief actuary, the Canada Pension Plan is solid for at least 75 years.

Today’s tangle of problems has no simple remedy. There are weaknesses in every part of the pension system. No government has the tools to fix them all.

Moreover, there is no forum where everyone – federal and provincial decision-makers, pension experts and representatives from business and labour and seniors organizations – can get together and develop a comprehensive strategy.

Ontario Premier Dalton McGuinty has been urging Prime Minister Stephen Harper since April to convene a top-level pension summit. So far, there has been no response.

This leaves Canadians on their own to piece together the disjointed debate taking place in the business community, the labour movement, the financial sector, the media and the provincial capitals.

For those who need a framework, economist Monica Townson, who has specialized in pensions for more than two decades, has written a succinct analysis of what is wrong and what can be done.

The nine-page paper, commissioned by the Tommy Douglas Research Institute, is more descriptive than prescriptive. But it does contain two clear messages.

The first is that there is no “magic bullet that will fix everything.” It will take a mix of reforms – some fast-acting, some long-term – to shore up the pension system.

The second is that Canada has to get moving now.

The bulk of Townson’s paper (available at www.policyalternatives.ca) is an easy-to-understand pension primer.

She begins by explaining Canada’s three-tiered retirement income system. The foundation is the universal Old Age Security program (with a supplement for low-income seniors). The next level is the Canada Pension Plan, which covers members of the paid workforce. The third echelon is private arrangements: company pensions, retirement savings plans and other investments.

Then she highlights the weakness in each layer.

* Old Age Security was designed to keep seniors above the poverty line. For decades it succeeded. Now it has worn thin. One out of every seven unattached older women lives in poverty. It would take an increase in the across-the-board senior allowance or the low-income supplement to rectify this problem.
* The Canada Pension Plan was meant to top up the coverage provided by employers. But 62 per cent of workers have no employee pension. It would take a major expansion of the CPP – financed by another hike in premiums – to provide an adequate pension for all members of the workforce.
* Registered retirement savings plans were created to encourage Canadians to set aside money for their non-working years. Contributions are tax sheltered. But the vast majority of Canadians (69 per cent) don’t contribute. Nor do they squirrel away funds in other ways.

The result: Millions of Canadians are heading toward retirement with too little to live on for the rest of their lives.

This crisis has simmered for a long time. Now it has come to a boil. Everyone – from Bay Street to the factory floor – is looking for leadership.

That used to the Prime Minister’s job.

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