Like most young men growing up in Thunder Bay, Ont., in the 1970s, or anywhere on the planet for that matter, Alex Cryderman was too focused on the next weekend to give much thought to his golden years. So, at 21, when he followed his father and brother into a job at the Abitibi paper mill, and learned that part of his paycheque would be held back to fund his pension, he was more annoyed than anything. That feeling changed over time, of course. And as the months turned into years and the years to decades, Cryderman, now 50, came to rely heavily on his pension savings for the retirement plan taking shape in his head. “I was going to be out of here in five years with a pretty good pension,” he says. “I was going to spend time on my boat, fish, travel with my wife, really live the good life like they say in the ads.”
Then one morning earlier this year, Cryderman awoke to frightening news—Abitibi-Bowater had filed for bankruptcy protection. Suddenly, his pension, along with those of 8,000 other employees at the company, was at serious risk. With the stock market collapse and the company no longer paying into the pension fund, the plan has become dangerously underfunded. Now Cryderman can only wait, and regret—wait to learn how much of his retirement savings he’ll be able to salvage, and regret not putting more money away on the side over the years. “If you’d have known what was coming down the pipe, you’d have lived your life differently,” he says. “We never thought this day would ever come.”
It’s become an all-too-familiar refrain across the country. Employees in industries as diverse as technology, media, forestry and manufacturing are all seeing their pensions evaporate before their eyes as companies falter and creditors put them under the knife. But it’s not just those workers lucky enough to have a pension who’ve been side-swiped. After all, more than 60 per cent of Canadians have no such safety net at all. For the unfortunate majority, market turmoil has pummelled what little savings they’d managed to tuck away. In 2007, according to a poll by RBC, the average Canadian with an RRSP had managed to save just $72,481, but since then the market has fallen a stunning 23 per cent. And for those younger workers who still have years left to save, there’s the prospect of about 10 million baby boomers retiring over the next 15 years—a huge demographic shift with the potential to cripple the country’s finances and drive up taxes if it’s not handled smartly. “Suddenly everybody has woken up to the fact that two-thirds of retirees are going to be underfunded,” says Glen Hodgson, chief economist with the Conference Board of Canada. “There’s a huge danger right now that we’re under-saved as a nation.”
Put it all together, and Canadian workers of all ages are now coming to terms with a daunting realization—unless you’re lucky enough to have an ironclad, taxpayer-backed government pension, or rich relatives, your dreams of retirement are now truly out of reach. We aren’t about to go back to the early 19th century when many workers toiled seven days a week until the day they died. But the cherished notion that at some fixed date in the future workers can put down their wrenches or log off for good is coming to an end.
The idea of taking time off at the end of your working life to kick back and enjoy your final years is a relatively modern invention. In 1889 German chancellor Otto von Bismarck crafted the world’s first government-supported pension for workers once they hit age 70 (it later became 65). That wasn’t much of a concession, though. The average life expectancy at the time in the country was just 40. “He was a brilliant general and a very clever actuary,” says Moshe Milevsky, a professor of finance at York University’s Schulich School of Business. “He knew few people got to that age so it wasn’t expensive. Since then retirement has morphed into a very long vacation that’s simply not sustainable.”
Happily, today most of us see 40 come and go with little more than a few cheesy mid-life birthday cards and maybe a new sports car. But the idea that 65 would be the point at which we punch out from work for the last time has stuck. And this is the root of many of the problems governments, companies and workers now face. In the 1950s, just a decade before the Canada Pension Plan (CPP) was created and set 65 as retirement age, life expectancy was just one year past that. Today, the average life expectancy is 80 (more for women, less for men), and some time in the coming decades, thanks to medical advances, it may well hit triple digits.
Yet rather than working longer, many of us have been choosing to leave our jobs earlier. Since 1976 the average age of retirement in Canada has fallen from nearly 65 to 61, while many workers in the public sector now leave their jobs before they even turn 60. What this means is workers are spending less time in their earning years, yet expect to spend even more time living off their depleted nest eggs. It doesn’t take a math teacher to explain the flaw there, though it does help to use one to illustrate the point. The average teacher in Ontario retires at 57 yet has a life expectancy of 90, says Robert Brown, an actuarial scientist at the University of Waterloo who has dug into the data. In other words, that math teacher will potentially spend more time in retirement than working in the classroom.
For government employees with defined benefit (DB) pension plans, like teachers, garbage collectors, police officers and postal workers, this isn’t a terrible concern. DB plans are by far the most luxurious form of retirement savings out there, because they guarantee retirees a fixed payout that often rises along with inflation. About 80 per cent of public sector workers enjoy DB plans, versus just 23 per cent in the private sector. But if teachers don’t have to worry about their pensions, taxpayers sure do. These comfy plans are a huge public liability. Should a public sector pension fund come up short, taxpayers will be on the hook to bail out retirees.
The prospects are far worse for those in the private sector. DB plans are rare and growing rarer. Instead, those private sector workers fortunate enough to have a pension at all are mostly enrolled in defined contribution (DC) plans. In that type of plan, payouts to retirees depend entirely on how much money is put in, as well as how well it is managed. With the plunge in stock markets last year, and the recession, many DC pension plans have been devastated. But the same goes for many private sector DB plans, which face huge shortfalls. In the case of AbitibiBowater, an audit is being carried out on the pension fund, but it’s expected to be underfunded by between 20 and 25 per cent. Meanwhile, retirees at Nortel, which filed for bankruptcy earlier this year, could see their pensions cut by more than 30 per cent, forcing some retirees to return to work to make ends meet. So even as workers are possibly looking at decades in retirement, their pensions are proving wholly unreliable.
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