Thursday, October 22, 2009

Why don't we all have adequate pensions?

One of the planks in Canada's brand of socialism recognizes the plight of old age and provides the Canada Pension Plan and Old Age Security as a right to its citizens when they reach old age. However, all Canadians do not have a pension plan. According to the Canadian Association of Retired Persons, about three quarters of Canadians in the private sector do not have a workplace pension. Government employees as well as employers in the private sector provide the CPP which has mandatory shared contributions and the pensions may be inadequate but it was meant to reduce poverty in old age when it was implemented over 40 years ago. Government and many private sector employers supplement the CPP with additional pensions for their employees but many do not leaving employees without a plan unless they have been able to put aside funds in an individual RRSP or some other investments. This subjects them to the uncertainty of the stock market leaving them vulnerable at a time when they may need their pension most.

Government pensions seem to be the most robust to weather the volatility of the market but relying on the CPP will not meet the original goal of the plan to eliminate poverty as we reach old age and by that time these people will be unable to support ourselves with paid work. This means that people who only have the CPP will need to put more aside during their working life time to supplement their pension safety net.

Pension advocates have proposed a second tier of national pension relief. One that would be robust enough to withstand changes in demographics and a volatile market. A supplementary pension plan that would ensure that the "pension gap" could be covered. However, details on this "second tier" pension are not clear yet. Would it be mandatory or voluntary? Could everyone afford it? How would it withstand demographic changes over time?


Lets have more discussion and ask government to be transparent in the discussions they are having on alleviating the pension gap.

No comments:

Post a Comment