In theory, Canadians will retire on a mix of income from government pensions and entitlements, personal savings, and workplace pension plans. In practice, they can really only count on the first two. Even then, the Canada Pension Plan and benefits like Old Age Security will only fill a portion of their needs.
When it comes to personal savings and workplace pensions, though, our future looks bleak. For years, we’ve saved less and less. People were putting away more than 10 per cent of their disposable income in the mid-1980s; lately, it’s closer to two per cent.
Even hard-core savers face obstacles. Those who save by investing in retail financial products are hit by high sales and management costs that undermine eventual yields. When stock markets dip, registered retirement savings account values follow, which explains why there was a six per cent decline in the number of people making RRSP contributions last year.
But why save when you can spend? Earlier this year, the Certified General Accountants Association reported that national household debt has reached $1.3 trillion, and 85 per cent of Canadians are carrying outstanding balances on their credit cards. Personal lines of credit now show outstanding balances of $181 billion. That’s nearly four times the amount that was outstanding in 2000.
At worst, this country faces an unprecedented rise in personal insolvencies in the next few years. At best, all that accumulated debt will have to be paid down, further weakening our ability to save for retirement.
Public and private sector employers can’t help us out of this mess. Corporate and public sector pension plans have been struggling with funding deficits since the tech bubble burst in 2000, and remain billions short of their long-term funding commitments. In cases like Air Canada, where the pension shortfall is about $6 billion, the outlook is scary.
Making up funding deficiencies will take years. The corporate sector is also trying to lessen future needs by steering workers into defined contribution pension plans where companies aren’t locked into pre-determined benefit payouts the way they are in traditional defined benefit plans.
However you define it, only 5.9 million workers are covered by employer pension plans. Of Canada’s 11 million or so other workers, many have arrangements like company assisted RRSPs, while at least 3.5 million have no company plans at all.
Next: The growing pressure for a new, expanded public pension plan.