The storm warnings of Canada’s impending pension crisis are hard to miss. Some 3.5 million of us have no workplace pension plan whatsoever. Those who do are enrolled in plans that may not be able to meet long-term commitments.

Not surprisingly, there are calls for new public pension plans, mandatory and voluntary. The idea is to supplement the incomes of retirees, whose ranks will swell as baby boomers flood into retirement. As things stand, the outlook is grim. According to HSBC Insurance, which annually surveys the global retirement scene, 83 per cent of Canadians have no real idea what their retirement income will be.

Even the bedrock of our pension system, the Canada Pension Plan, is being fine-tuned to reflect growing stresses. As part of their triennial review, the federal and provincial finance ministers who oversee the CPP decided to further reduce the size of benefits taken between the ages of 60 and 65. This change will be phased in over five years, starting in 2012. Conversely, those who wait until they’re between the ages of 65 and 70 to apply for the CPP will get more than before. These increases will be phased in over three years, starting in 2011. The intent, clearly, is to encourage those who can manage it to delay taking their CPP benefits as long as possible.

Also in 2012, the CPP will eliminate the work cessation test, which states you either stop working for the two-month period when benefits start or keep other income below $908.75 per month, the current maximum CPP benefit. The aim is to provide benefits sooner without financial disruption for those with lower incomes.

Despite recent criticisms over its investment performance (the CPP fund’s assets dropped 14 per cent to $105.5 billion in the latest fiscal year) and the bonuses given to managers at the CPP Investment Board, the CPP is one of the pension world’s greatest successes. Since reforms stabilized the plan in the 1990s, the CPP has grown hugely on the strength of an increasingly sophisticated investment strategy. And given the current level of contributions, investment income won’t be needed to pay benefits for 11 years.

There’s just one catch. The CPP is only designed to replace about 25 per cent of your pre-retirement earnings. That means you’ll need other income — in entitlements like OAS and GIS, company pension plans, and personal savings — to have a comfy old age.

Next: Why personal savings and company pensions won’t fill the gap.

– Charles Davies is a veteran business writer who has worked for Canadian and international news organizations.

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