The other day I was listening to radio and the story line was about Boomers who are bust. Older workers who do not have enough fo retirement because they did not save enough. Older workers who did not have enough for retirement because they lost their jobs, etc.
While the press may be waking up to the issue as the boomers start to hit 65, the problem should have been known to the government and planners 60 plus years ago. The problem is now here and people are starting to think about it.
I have friends who are in the position of not having enough for retirement, through no fault of their own. Part of the issue is how the planners see us as investors and therefore plan as such. Another contributing factor is the current leaders think like economists.
My university training is in Economics and one thing I know is that Economists are not really original thinkers and they tend to buy into theories and discount human behaviour in their thinking, which is a shame.
Planners and Government mandarins tend to belive that the ‘economic investor’ is a dispassionate individual who is unaffected by emotions such as anxiety, regret, hope and fear. I can tell you that this rational investor simply does not exist. Everyone sees the world from a perspective which is uniquely theirs, and investing is no different.
People have individual goals, requirements, desires, fears and hopes for their wealth. We all have different habits, different people we trust for advice, and different beliefs about the right decision on any occasion. But we all exhibit very similar psychological biases in our financial decision making, which can lead to poor portfolio choices and subsequent investment performance.
The information in this blog has been taken from Pooled Target-Benefit Pension Plans: Building on PRPPs by Robert L. Brown and Tyler Meredith and from reports from Barclay Banks Behavioural Finance reports.
While the press may be waking up to the issue as the boomers start to hit 65, the problem should have been known to the government and planners 60 plus years ago. The problem is now here and people are starting to think about it.
I have friends who are in the position of not having enough for retirement, through no fault of their own. Part of the issue is how the planners see us as investors and therefore plan as such. Another contributing factor is the current leaders think like economists.
My university training is in Economics and one thing I know is that Economists are not really original thinkers and they tend to buy into theories and discount human behaviour in their thinking, which is a shame.
Planners and Government mandarins tend to belive that the ‘economic investor’ is a dispassionate individual who is unaffected by emotions such as anxiety, regret, hope and fear. I can tell you that this rational investor simply does not exist. Everyone sees the world from a perspective which is uniquely theirs, and investing is no different.
People have individual goals, requirements, desires, fears and hopes for their wealth. We all have different habits, different people we trust for advice, and different beliefs about the right decision on any occasion. But we all exhibit very similar psychological biases in our financial decision making, which can lead to poor portfolio choices and subsequent investment performance.
The information in this blog has been taken from Pooled Target-Benefit Pension Plans: Building on PRPPs by Robert L. Brown and Tyler Meredith and from reports from Barclay Banks Behavioural Finance reports.
How you ask is sometimes more important than what you ask. Individuals are extremely sensitive to the way in which decisions are presented or ‘framed’ – simply changing the wording or adding irrelevant background detail can dramatically change people’s perceptions of the alternatives available to them, even where there is no reason for their underlying preferences to have changed. Consequently the framing of questions can often influence the decision that is made.
More than 60 percent of working Canadians currently don’t have a workplace pension. For those who do have one, it does not guarantee them retirement security. With employers increasingly opting for defined-contribution (DC) rather than defined-benefit (DB) pension plans, the burden of managing the risks associated with a pension — such as longevity and the market performance of assets — has shifted to the worker. While this shift may have curtailed pension costs for businesses, it has also left workers more vulnerable financially, since many do not have the wherewithal to plan effectively for retirement.
The world of employer-sponsored pension plans is evolving. While the traditional defined benefit (DB) pension plan remains the primary model for occupational pensions — where they exist — DB pensions have been in a slow and persistent decline for more than two decades. This decline can be measured in different ways: (1) Between 1986 and 2010, the proportion of the Canadian labour force covered by DB pension plans shrank from 39 percent to 29 percent, while over the same period the number of employees covered by defined contribution (DC) pension plans nearly tripled. (2) The share of registered pension plan members covered by a DB plan fell from 92 to 75 percent, while the proportion in a DC plan doubled from 7 to 16 percent (with the remaining 9 percent covered by hybrid and combined plans) (Statistics Canada 2010b,c).These statistics tell us that there has been a notable shift away from DB pensions,
As in many other countries, in Canada the decline of DB pensions has been felt almost exclusively in the private sector. Among public sector workers, 86 percent have workplace pensions, of which 94 percent are DB. Yet only 25 percent of Canadian private sector workers have workplace pensions, and only 56 percent of those are DB (Statistics Canada 2011). The concern is that for middle-income Canadians, access to a stable, secure and adequate standard of living after retirement increasingly depends on where one is employed.
The 2011 Towers Watson DC Retirement Age Index (figure 3) uses market performance to calculate the age at which an average middle-income worker paying into a DC plan can retire with sufficient asset value to pay for a life annuity guaranteeing an average rate of income replacement. According to the index, workers have had to increase Pooled Target-Benefit Pension Plans: Building on PRPPs their retirement savings by an equivalent of seven years just to balance off losses since the financial crisis of autumn 2008. For many, this means making a trade-off between taking early retirement and achieving the desired standard of living.
A growing number of individuals are now covered by a pension plan that is neither traditional DB nor traditional DC. While it is still a relatively small proportion of total registered pension plan coverage, as of 2010 more than 530,000 workers were covered by hybrid plans as classified by Statistics Canada. Growth in their membership has been nearly tenfold since 1986 (Statistics Canada 2010b). It is important to emphasize that these figures do not include a number of DB regulated plans that possess important elements of hybrid design, such as target-benefit plans. When these are included, as many as one million more workers could be added to the hybrid plan pool, representing a strong cross-section of the Canadian labour force.
Although the optimal rate of income replacement for retirement remains an open question (Mintz 2009; Horner 2009; Wolfson 2011), it is generally accepted that a growing number of modest- and middle-income working-age Canadians are not saving sufficiently to ensure that they will be able to maintain a comparable standard of living once they retire (Horner 2011; Wolfson 2011; Canadian Institute of Actuaries 2007). There are a number of reasons for this. Perhaps most importantly, the propensity to save has diminished significantly over the last several decades. The stagnation of real incomes since the 1980s, combined with increased volatility in financial markets, has made saving more difficult and less secure. Symptoms of this trend are flat real-dollar growth in RRSP contributions and increasing reliance on personal debt as a source of retirement funding (Robson 2010). For the most part, this trend is a middle-class problem (LaRochelle-Côté, Myles, and Picot 2008; Wolfson 2011). Low-income Canadians can generally be assured of replacement rates of 70 to 80 percent, thanks to Canada’s strong foundation of universal and targeted retirement income programs: Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), together known as Pillar 1 of Canada’s retirement income system; and the CPP/QPP, known as Pillar 2 (Mintz 2009)
So the middle class have a large looming pension crises and in response the government is deciding to raise the age of retirement and to cause further distress for the middle class and the boomers. I think they forget we vote.
Canadian Institute of Actuaries. 2007. Planning for Retirement: Are Canadians Saving Enough? Ottawa: CIA.
Horner, K. 2009. Retirement Savings by Canadian Households. Report for the Research Working Group on Retirement Saving. Ottawa: Finance Canada
LaRochelle-Côté, S., J.F. Myles, and G. Picot. 2008. “Income Security and Stability During Retirement in Canada.” =Analytical Studies Branch Research Paper Series, catalogue no. 11F0019 — no. 306. Ottawa: Statistics Canada
Mintz, J. 2009. Summary Report on Retirement Income Adequacy Research. Federal Research Working Group on Income Adequacy. Ottawa: Finance Canada
Wolfson, M. 2011. Projecting the Adequacy of Canadians’ Retirement Incomes: Current Prospects and Possible Reform Options. IRPP Study 17. Montreal: Institute for Research on Public Policy.
No comments:
Post a Comment