Our Aging Boomers: A Four-Part Series

Saturday: Early boomers hit 65

Sunday: The coming health crunch

Monday: How boomers will define aging

Today: The pension pinch

As the first wave of baby boomers turn 65, the number of Canadians approaching retirement is growing at a pace never seen in Canadian history.

Problem is, for many of them, their bank accounts aren’t.

Freedom 55, some Canadians are finding, is barely attainable at age 65 or even 75.

The crush of the economic downturn – which saw many boomers loose large chunks of their life savings – has forced some of them to work several more years than initially envisioned in their retirement plans.

Others simply haven’t socked away enough of a nest egg over the decades to live comfortably in what should be the best years of their lives.

A majority of Canadians working in the private sector don’t have pension plans.

The boomers may be coming in waves, but a financial tsunami could be in their wake.

“You’ll find in five to 10 years time there’s people who will wake up and say, ‘Crap, what’s happened?’ ” says Robert Robotham, chairman of the Calgary chapter of CARP, Canada’s association for the 50-plus.

Ideally, boomers will have 60 to 70 per cent of their normal employment income once they reach retirement, Robotham notes, but anecdotal evidence suggests many are only receiving 30 per cent, or slightly more, of their previous working wages.

“If they want to maintain the same standard of living, it’s going to be difficult,” he adds. “It’s not an immediate problem, but it’s a future problem.”

Certainly, governments across Canada believe it’s a problem. They’re in the midst of crafting some solutions to alleviate the looming retirement income crunch.

Last month, provincial and federal finance ministers met in Kananaskis and came away with an agreement to create a private-sector pension vehicle to boost retirement savings.

The Pooled Registered Pension Plans is targeted at small- and medium-sized businesses, and the self-employed, who don’t have a workplace pension option.

“It does address the issue that we’re focused on, which is people in their middle years not saving adequately for their retirement,” federal Finance Minister Jim Flaherty told reporters at the conference.

“The real benefit of it will be seen down the road when people retire and they have adequate retirement income.”

It is estimated six in 10 Canadian workers in the private sector have no private pension plan. Furthermore, only one-third of Canadians make contributions to RRSPs.

Flaherty believes the new savings scheme will provide more retirement security for Canadians – especially for self-employed workers or people who work for small firms that don’t offer pension plans.

The federal finance minister has subsequently shelved plans – which had been in the works for most of last year – for a modest enhancement of the government-run Canada Pension Plan.

The enriched CPP approach had initially been favoured by most provinces, but was opposed by Alberta, which has been seeking a form of private-sector pension (similar to the PRPP) with British Columbia for the past three years.

“The Canada Pension Plan, it’s pretty well known, is a much better deal for my parents than it is for me, and a much better deal for me than it is for (the younger) generation because of under-contribution by earlier cohorts,” reasons Alberta Finance Minister Ted Morton.

Morton explains that an enhanced CPP would limit the ability of boomers and other Canadians to invest their income in other savings strategies.

Currently, the CPP replaces up to 25 per cent of pre-retirement employment earnings, up to a maximum amount. For 2010, the maximum amount was $47,200, meaning maximum earnings for an individual are just more than $1,000 per month.

Options discussed during the Kananaskis meetings included increasing the percentage of income that may be replaced to 35 per cent, hiking the maximum amount, or both. Finance ministers will carefully examine the enriched CPP option while moving forward with the private-sector plan.

Under the PRPP approach, a company could arrange for a regulated financial institution to operate a plan, therein reducing the cost and complexity for small businesses to participate. For self-employed workers, the PRPP would be accessible without having a connection to an employer.

The Alberta Federation of Labour, however, is staunchly opposed to the private-sector plan, insisting the current retirement savings crunch will only grow worse unless the CPP is enriched.

The AFL, which represents nearly 140,000 public and private sector workers in the province, contends only 35 per cent of working Albertans are covered by a workplace pension (with the number falling each year). Furthermore, only 38 per cent of Albertans made RRSP contributions in 2008, with the average contribution being $3,200, adds AFL president Gil McGowan.

Indeed, an increasing number of people approaching retirement age are suddenly finding they don’t have enough socked away for their post-working years, says Gary Pool, president of the Alberta Council on Aging.

One of the effects of the prolonged economic slump is that many Albertans aren’t retiring at 65 and are now working for several years more than originally planned just to comfortably subsist, Pool explains.

And he fears the same problem will plague a host of boomers, although working longer will provide more stable income for people who don’t have a large enough nest egg.

“A whole bunch of them aren’t going to retire,” Pool says. “Having more seniors and boomers working longer will help mute some of the financial challenges.”

He argues the CPP and old age supplement must be improved if boomers and the next generation of workers are to save enough for retirement, believing it’s difficult for farmers, the self-employed and small-business owners to save a lot of cash for private pension plans.

But Jack Mintz, a financial expert and head of the school of public policy at the University of Calgary, isn’t convinced baby boomers or seniors of today are in dire financial straits.

Approximately 80 per cent of Canadians are doing “perfectly well” on their savings and retirement income, says Mintz, who delivered similar findings a year ago in a report to finance ministers.

The lower income is often able to replace much of the workplaces wages with CPP and old age security, while the affluent have saved enough from their working years to ensure comfortable income in retirement, he says.

It’s a section of the middle class, who haven’t saved enough and won’t be able to live the same lifestyle in retirement with CPP and old-age security, who could be in for a financial jolt, adds Mintz, who supports the PRPP approach from Ottawa.

He notes the economic downturn has certainly hurt many Boomers and delayed some retirements. However, many Canadians, while not having registered pension plans, are stashing away sufficient retirement savings in RRSPs and other vehicles.

Just as important, boomers also have an enormous amount of equity secured in their homes, which have soared in price over the past decade and remain far more valuable than properties in the United States.

“Having equity is an important retirement income,” Mintz says. “In Canada, we’ve been quite fortunate we didn’t get the same hit to our wealth as in the U.S.”

Yet, Robotham with the Calgary chapter of CARP doubts the PRPP will do much to improve Canadians’ retirement scenarios, suggesting most people won’t save cash for retirement if it’s not mandatory.

And he has a message for those who suggest boomers and current seniors are financially well off in retirement because they own valuable homes.

“You can’t eat the front step,” Robotham says.

Calgary Herald, Tues Jan 4 2011
Byline: Jason Fekete