Monday, January 9, 2012

Pension envy grows as boomers retire

I found this article By Jonathan Chevreau, Wealthy Boomer; Financial PostOctober 29, 2011, interesting.
There were several signs this week that pension envy - or pension apartheid - is alive and well in Canada and likely to intensify as Baby Boomers start retiring, or try to retire.
The great divide is between the lucky 20% in cushy public-sector defined-benefit pensions and the rest hoping to retire on fluctuating RRSPs or defined-contribution pensions.

On Wednesday, pension consultants Tower Watson said those with DC pensions can expect a pension freedom age approaching age 67 - two years beyond the traditional retirement age. And Statistics Canada reported 50-year-old Canadian workers can expect to work 16 more years, three years longer than in the 1990s.

The conspicuous exception to this trend is the minority who live in the protected "Bell Jar," to use a term from a new book from Wiley Canada, Pension Ponzi. It reports the average public-sector retirement age is a spry 59.

To match public-sector DB pensions, the rest of us would need $2million RRSPs, which is why the CD Howe Institute this week urged a lifetime contribution limit of just that figure.

The book's co-authors, Lee Fairbanks and Bill Tufts of the Fair Pensions for All blog, recap how Canada's public-sector unions won their members huge salaries "that far outstrip anything comparable in the private sector and incredibly generous pensions." The beneficiaries all rate chapters in the book: government workers and politicians, teachers, firefighters, police officers and the armed forces.

Rather than bring the 80% up to their level, Fairbanks and Tufts would make the Bell Jar less cushy. They liken the status quo to a "pension Ponzi scheme" that will eventually collapse. Despite the complacency of the 20%, Canada is a small country with a large ($1-trillion) public debt. The authors expect the chickens to come home to roost, as they have in Ireland and Greece.

It's true some non-unionized private-sector workers still have DB pensions but these are rarely the Cadillac inflation-indexed plans unions negotiated for the public sector. And the trend for large corporate employers is to close DB plans to new hires, switching to DC pensions, which - like RRSPs - lack the "defined" promise of a guaranteed monthly income in retirement.

While DC plans and RRSPs may do well in protracted bull markets the reality of the past decade has been the opposite. The result is what Towers Watson terms a "double whammy" for those not in DB plans.

You could argue all workers qualify for a public DB pension in the form of the Canada Pension Plan (CPP). But average annual CPP benefits are $5,919, compared to $42,900 enjoyed by the Ontario Teachers' Pension Plan (OTPP), a difference of seven times.

When I cast my envious eye at contemporaries retired in their fifties, invariably they joined DB pensions early in their careers and stuck it out. One couple has TWO teacher pensions.

But it's by no means certain these pensions can meet their obligations. The OTPP is $35-billion short. (The author may intend to imply the OTPP is in big trouble, read the next paragraphs for another perspective)

The following is from Sue at Boomer Bucks which has a different perspective than the previous statement

The envied defined benefit Ontario Teachers Pension Plan posted record income in 2010 above its target benchmarks during the year, but this was not enough to stop its funding deficit from growing to $17.2-billion from $17.1-billion, as liabilities outpaced assets.

Further impacting this plan, not only is the Boomer demographic now beginning to influence the liabilities but on average in 1990, retiring teachers received benefits for 25 years after working 29 years. Now, members draw a pension for 30 years, after working 26 years.

With low interest rates and a staggering and uncertain stock market, it will be impossible to eliminate shortfalls through investment returns alone and the retirement demographic is blooming with Boomers.

While this Ontario Teachers Pension Plan is solid for now, and can pay benefits for years, there will need to be a plan to ensure funding to pay pensions to the younger teachers decades from now.

Look no further than Greece to see how countries can default on public-sector paycheques and break pension promises

My thoughts and some others are this,  here we go again. Instead of acknowledging how unfairly to varying degrees workers in the private sector are frequently treated by their employers, how exploited they are in the name of profit since they are the most vulnerable component in the production process, these writers, like so many on the right spectrum of economics, once again choose to resent the just achievements of collective bargaining in both the private and public sector. Teachers, firefighters, police officers, armed forces, government workers: our esteemed authors - probably graduates of the CD Howe Institute of Right of Centre Economics - are saying they do not deserve their defined benefits pensions. Why? Because most of the private sector employees don't get the same sort of benefits. What bunk!

Okay, all you folks in the private sector without DB plans who feel that way do something about it by confronting your employers instead of resenting the negotiated achievements of collective bargaining. I know that's a tough thing to do when almost everyone in the private sector is in effect a just-in-time worker living in fear, who can be axed at any moment. You are instantly replaceable, and you know it. You feel powerless and your are, caught in the vicious web of capitalism. So join the occupy movement, wear a mask if you have to, and check out senior mangement's paycheck if you still want to feel envious and resentful.

No comments:

Post a Comment