Pension envy grows as boomers retire

November 12, 2011

Financial Post, Ottawa Citizen, Star Phoenix,


Leader Post

Johnathan Chevreau

October 29, 2011

There were several signs this week that pension envy – or pension apartheid – is alive and well in Canada and likely to intensify as Baby Boomers start retiring, or try to.

The great divide is between the lucky 20% in cushy public-sector defined-benefit pensions and the rest hoping to retire on fluctuating RRSPs or defined-contribution pensions.

On Wednesday, pension consultants Tower Watson said those with DC pensions can expect a pension freedom age approaching age 67 – two years beyond the traditional retirement age. And Statistics Canada reported 50-year-old Canadian workers can expect to work 16 more years, three years longer than in the 1990s.

The conspicuous exception to this trend is the minority who live in the protected “Bell Jar,” to use a term from a new book from Wiley Canada, Pension Ponzi. It reports the average public-sector retirement age is a spry 59.

The book’s co-authors, Lee Fairbanks and Bill Tufts of the Fair Pensions for All blog, recap how Canada’s public-sector unions won their members huge salaries “that far outstrip anything comparable in the private sector and incredibly generous pensions.” The beneficiaries all rate chapters in the book: government workers and politicians, teachers, firefighters, police officers and the armed forces.

Rather than bring the 80% up to their level, Fairbanks and Tufts would make the Bell Jar less cushy. They liken the status quo to a “pension Ponzi scheme” that will eventually collapse. Despite the complacency of the 20%, Canada is a small country with a large ($1-trillion) public debt. The authors expect the chickens to come home to roost, as they have in Ireland and Greece.

It’s true some non-unionized private-sector workers still have DB pensions but these are rarely the Cadillac inflation-indexed plans unions negotiated for the public sector. And the trend for large corporate employers is to close DB plans to new hires, switching to DC pensions, which – like RRSPs – lack the “defined” promise of a guaranteed monthly income in retirement.

While DC plans and RRSPs may do well in protracted bull markets the reality of the past decade has been the opposite. The result is what Towers Watson terms a “double whammy” for those not in DB plans.

You could argue all workers qualify for a public DB pension in the form of the Canada Pension Plan (CPP). But average annual CPP benefits are $5,919, compared to $42,900 enjoyed by the Ontario Teachers’ Pension Plan (OTPP), a difference of seven times.

When I cast my envious eye at contemporaries retired in their fifties, invariably they joined DB pensions early in their careers and stuck it out. One couple has TWO teacher pensions.

But it’s by no means certain these pensions can meet their obligations. The OTPP is $35-billion short.

Look no further than Greece to see how countries can default on publicsector paycheques and break pension promises.

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