Pensions Galore

By Ray Rivers

August 1, 2014

BURLINGTON, ON.

As a young man I couldn’t have cared less about pensions.  I thought I’d live forever and probably die before I’d get a chance to retire.  Many young people feel that way – planning for one’s old age is not a priority.   And I had reason to hope my future had already been taken care of, because Canada had introduced its national pension plan only a few years earlier.

Where does the reform have to take place? In the minds of the citizens who do not seem to have been able to take personal responsibility for their own pension needs or at the government level where new ideas and new financial formats can be created to result in funds going into pension plans. Is this really a “mind” issue”?

The plan was simple and the accounting straightforward.  You pay in today and get your pension tomorrow.  This was fine when so many were contributing and so few were receiving pensioners.  But as the baby boomers started approaching retirement age and the liability growing, the plan had to be changed before it ran out of money.

So it fell to another federal government and finance minister Paul Martin, in the mid ’90’s, to transform the CPP into more of an investment fund, and place it on a sound financial footing.  The long-term goal is to make CPP progressively more self-funding from contributions and investment earnings, rather than requiring one generation to pay for another’s pension.

The CPP is a mandatory pension scheme based on one’s lifetime earnings.  But there are a full suite of other income sources for seniors to potentially access.  The Old Age Security (OAS) program and the supplementary benefits provisions, originally introduce in 1952, is essentially a senior’s welfare fund which is means-tested to ensure the benefits go to those most in need.

There is the registered retirement savings plan (RRSP), a voluntary limited tax deferred system ; the relatively new voluntary interest tax-free saving accounts (TFSA); employer run private pension plans and, of course, one can always save for retirement from one’s after-tax income.  Finally, the family home is a capital tax exempt asset should the retiree sell it and seniors with homes can get a reverse mortgage.

Well it is because so many seniors end up retiring and dying in poverty.  The CPP is currently paying an average of less than $7,000 a year.  It fails to provide even a decent minimal level of income for retirement.   And even with the OAS dollars thrown in, a pensioner would be living below the poverty line unless he/she had a company pension plan, RRSP, other savings or a house.

Bottom line is that the Ontario Retirement Pension Plan (ORPP) would level the playing field between those with an employer pension plan and those without, and that includes some expected three million Ontario workers.  The program will be phased in to minimize the pain to employers, and once in place, those working for the public sector (including teachers and health care workers), large industrial organizations (auto workers) and large institutions (banks) will no longer be the only ones with a comfortable pension plan.

A sustainable retirement income may also reduce the number of Ontario claimants requiring supplementary benefits from the OAS.  How ironic that a provincial pension program, heavily criticized by the federal government, ends up also reducing the federal deficit.

The first pension plan for people was created by German Chancellor Otto on Bismark.

Liberal Prime Minister Lester Pearson was behind the move to provide comprehensive pensions

Yet Ontario’s approach embraces a fundamental conservative philosophy, about people looking after themselves – paying their own way- rather than relying on government welfare to meet their living needs as seniors.  Pensions are long term arrangements, and the federal government, like that young man or woman, just doesn’t want to make that a priority today.

Background links:

ORPP        Canada Pension Plan

CPP and OAS        Pensions        Ontario Pension 

More Ontario       David Dodge

Ray Rivers writes weekly on both federal and provincial politics, applying his more than 25 years as a federal bureaucrat to his thinking.  Rivers was a candidate for provincial office in Burlington where he ran against Cam Jackson in 1995, the year Mike Harris and the Common Sense Revolution swept the province.