Making things worse, fewer and fewer companies are offering their employees a pension plan of any type, leaving workers completely on their own when it comes to retirement saving. Over the last 20 years the financial service industry has honed its message to this ever expanding group, with a barrage of commercials every RRSP season. The message: put a little away each year, and you too can enjoy freedom at 55 to stroll windswept beaches and spend summers at the cottage with the grandkids. It all sounds nice, but there’s little to suggest that coming generations will be able to realize that dreamy version of retirement.
When the Dow Jones Industrial Average passed through the 10,000 mark last week, loud cheers went up, heralding it as a return to stability. But like some bad horror movie where the heroes are lost in the woods and walking in circles, we’ve criss-crossed through 10,000 at least a dozen times since 1999.
Is it really any wonder then that younger Canadians—those most likely to be without a pension plan—are shunning the markets? According to a survey released by TD Canada Trust last month, workers between the ages of 18 and 34 said they are saving as little as 10 per cent of their income. That’s down considerably from the 29 per cent that Canadians over 55 recalled saving when they were between those ages. There’s probably some historical revisionism on the part of older Canadians in the survey, but it fits with many other studies conducted in recent years. That will only exacerbate the problem as those younger workers approach a retirement that could stretch into four decades. “Gen-Yers face the worst of it, but I don’t think they’re aware of it at all,” says Milevsky.
But there’s an even bigger problem looming in the future. Just as Canadians are living longer, there are fewer of us being born. Canada’s fertility rate of 1.66 children per woman, while up slightly in recent years, is still near record lows and creating serious unbalance. The declining ratio of workers to retirees threatens to create a huge burden on future generations. Today there are about five workers for every retiree over the age of 65, but by 2031 there will be just two people working for every one in retirement, according to Statistics Canada. “The ratio of workers to retirees is dropping and it will continue to fall for another 20 years before it levels out,” says Malcolm Hamilton, an actuary with human resources firm Mercer. “Nobody is really sure what the implications are, other than they could be profound.”
One very real possibility is that health care and Old Age Security costs are likely to surge, forcing governments to hike taxes on the shrinking workforce. There’s no real threat of the country going bust, says Jonathan Kesselman, a public policy professor at Simon Fraser University, but it will become a huge political issue. “How much will the working population in the year 2030 be willing to see their taxes go to support old folks, versus supporting the things they want, like better highways, schools and health care for themselves?”
If you want to see where we could be headed in all of this, look across the pond to Europe. Last week, a report submitted to the European Union warned that the mass of retiring workers is a time bomb waiting to go off, and could do far more damage to countries’ finances than the recent bouts of deficit spending. “Though the debt and deficit increases are by themselves quite impressive, the projected impact on public finances of aging populations is anticipated to dwarf the effect of the crisis many times over,” the report stated. The only real answer, the EU was told, is for workers to curb their retirement expectations and stay on the job longer.
In some ways, Canada is better off than many other countries. Reforms in the 1990s closed the funding gap for the CPP, and this country’s relatively low debt as a share of GDP should leave more fiscal room to manoeuvre if the demographic crunch becomes serious. Last week, a report by Mercer ranked Canada’s public and private pension system fourth out of 11 countries. And there are other things that can still be done to try to repair the retirement system. Unions would like to see CPP payouts expanded. They have also called on government to protect workers’ pensions in the event of corporate bankruptcies. This December provincial finance ministers will meet in the Yukon to discuss the pension crisis.
But whatever solutions they propose, many experts say there’s no getting around the fact the 30-year retirement has become unsustainable. We’ve already seen governments in Canada take some steps to keep workers in the labour force longer. Provinces like B.C. and Ontario have abolished mandatory retirement legislation. Earlier this year Ottawa proposed changes to the CPP, set to take effect in 2011, that reward workers who stick around until they’re 70. More is needed, according to a study released by the C.D. Howe Institute in July. In addition to encouraging Canadians to have more babies, and hence more workers, the report said Canada has little choice but to push back the age of retirement. “Advances in longevity and shifts toward later workforce entry and less physically demanding occupations mean that the equivalent of working until age 65 in 1970 is now working until at least age 70,” the report said. At the very least, says the University of Waterloo’s Brown, workers should be encouraged to give up the idea of early retirement and stay on the job until 65.
So perhaps it’s a good sign that more workers plan to keep working in some fashion after they retire. Last year, in another RRSP-season survey, RBC Financial found that more than half of workers under the age of 55 plan to work as long as possible, even if they have the money needed to retire.
Besides, maybe working longer isn’t such a bad idea after all. Just last week researchers at the University of Maryland found that retirees who take on temporary or part-time jobs related to their fields suffer from fewer diseases and mental health problems than those who opt for full-time retirement. For workers like Cryderman, who toil in mills, mines and factories, that’s not an option. But it’s a message other workers might pay attention to. After all, they probably won’t have a choice anyway.
Pages: 1 2
