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It will be the ‘biggest social issue we’re going to be debating in our society’

Talking about pensions may seem deadly boring but it will likely emerge as a much bigger issue in the years to come.

That’s because of several colliding factors ­aging baby boomers, low interest rates and weak stock market returns.

Plus more companies, especially small and medium-sized businesses, don’t offer pen­sion plans. Those that do are switching from defined benefit programs, with guaranteed . payouts, to defined contribution plans, which are based on accumulated contributions.

A number of pension plans have been dam­aged severely by the last recession or corpo­rate bankruptcies. Nortel pensioners have engaged in a high-profile public fight for their benefits, which have been compromised by the company’s demise.

“Pensions will be the biggest social issue that we’re going to be debating in our society over the next 10 years:’ said Rick Robertson, an associate professor at the Ivey School of Business.

Statistics Canada reported this week that about 6 million Canadians were in registered pension plans as of Jan. L 2010. Of those, 3.02 million work in the public sector as bureau­crats, nurses and teachers.

Nearly 60 per cent of working Canadians have no company pension, StatsCan says

Those working in the private sector know fewer employers offer pension plans, and more companies are switching to defined contribution plans from defined benefit plans. Some only offer defined contribution plans to new hires.

Air Canada is trying to switch newemploy­ees to these cheaper plans. Its 3,000 pilots, who have reportedly balked at the idea. are in the midst of a ratification vote on a tentative deal. Statistics Canada says nearly 60 per cent of working Canadians – or 12.3 million people – have no company pension.

While government supports are in place ­the Canada Pension Plan for all working Canadians, Old Age Security for all Canadians and the Guaranteed Income Supplement for II low-income Canadians – it’s the middle earners who are feeling the pinch.

 A defined benefit plan has one huge advan­tage: people don’t go to sleep at night worried when they have retired,” said Robertson. ”It leads to very different lifestyle choices.”

With these latest statistics, he believes it’s only natural for governments to try to pull back on pensions, though it would lead to a very tough fight with unions.                  «

“There are some pretty powerful unions.

Think of the teachers. Everyone says, ‘Take them on: but as soon as somebody’s kid doesn’t have a place to go that day, then they say, ‘Just solve it;” Robertson said

Any move to introduce pension changes would not solve immediate fiscal problems, but some U.S. states, where unions are weak or non-existent, have already done it

Newly hired state workers in Virginia are now on a retirement savings program instead of the traditional defined benefit plan.

Paul Forestall, senior partner at Mercer, a human resources consulting firm, believes there will be growing pressure on govern­ments here to move toward defined contribu­tionplans.

The Statistics Canada data shows about 143,000 government workers were on de­fined contribution plans in 2009, compared with 2.8 million on defined benefit plans.

”Pensions are a big part of compensation in the public sector. Changing it won’t be easy;”  he said, adding public sector employees like teachers also make significant contributions to the plans. Given the decline in manufactur­ing jobs, Forestall is not surprised public sec­tor workers now make up more than half of those with pension plans.

Ultimately, any changes may be dependent on government action.

 While Finance Minister Jim Flaherty has expressed concern Canadians aren’t saving enough for retirement, efforts to reform CPP have been thwarted by certain provinces, no­tablyAlberta

 Flaherty has floated the idea of a privately administered, voluntary program designed to help mainly the self-employed and workers at small businesses.

 “I think it would be a positive change if implemented, but I’m not sure it will be enough to address coverage;’ Forestall said

 If government reforms offer tax advantages to companies or make it easier to offer pen­sions, companies may start to offer defined contribution plans, though probably not de­fined benefit plans, he added.


Toronto Star

May 13, 2011


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