The B.C. government’s plan to create pooled pension plans for the province’s workers meets a growing need, and could help secure the futures of thousands of people.
As the population ages and economic uncertainty continues, workers of all ages look down the road and ask: “How can I afford to live after I retire?”
For many, the answer is putting off retirement. Surveys suggest more and more Canadians believe they will have to work well past 65. But that is only part of the solution. Eventually, every person reaches an age when they can no longer work. Canada Pension Plan and Old Age Security are not enough.
In the past few decades, most people counted on a workplace pension plan to provide a comfortable retirement, but federal government figures show that today more than 60 per cent of Canadians do not have such pension plans. In B.C., almost two-thirds of workers don’t have plans.
Many of those who have paid into a fund find their plans are underfunded thanks to poor returns on investment. Some even find their pension plans wiped out when companies go bankrupt.
Personal responsibility has always been an important part of securing retirement. Even those with pension plans have to save on their own, yet only 26 per cent of Canadians contribute to Registered Retirement Savings Plans every year.
Saving is hard. One of the advantages of a pension plan is that the contribution is taken off your paycheque before you get a chance to spend the money.
Pooled pensions make that forced saving available to the self-employed and employees of businesses that can’t afford pension plans of their own. If an employer doesn’t offer a plan, individual employees could sign up directly for a pooled plan.
The B.C. act, which works in concert with one recently passed by the federal government, is designed to be low-cost. Employers could choose to contribute to the plan, as with most current pension plans, but they are not required to. The funds would be administered by financial institutions that qualify under a federal framework, so the administrative costs to employers would be kept to a minimum.
Personal responsibility would still play a big part. Employees who are given the option should join a plan. They have to keep track of the state of their savings, because these are defined-contribution plans, not defined-benefit ones. The amount of pension you get depends on the returns on the investments.
Employees would be wise to continue saving and contributing to RRSPs.
Governments must also keep in mind that security of the plans is crucial, both to persuade individuals to join and to ensure their money is safe. The plan administrators must be closely monitored by government to catch any problems early.
Contributing to a pension plan is not like buying a TV. If a TV manufacturer delivers a bad product, you can resolve to buy a different brand the next time. If you reach 65 and discover your pension plan is gone, there is no time for a do-over. That is why pension plans of all kinds must be protected. Those in private companies should be held outside the company and required to be fully funded. If the company goes broke, workers’ and pensioners’ money must be safe.
Workers, governments and private employers all have an interest in securing the future of retirees. Retirees who have enough money for their needs will not burden governments or families. Retirees who have enough money for their wants will continue to buy goods and services from private businesses.
Pooled plans are one relatively inexpensive answer to a problem that is only going to grow.
© Copyright 2013