Another reason to move back to Defined Benefit Pensions

There has been much discussion over the the merits of moving Canadians towards Defined Contribution Plans and away from Defined Benefits Plans. Here is a study that shows how important Defined Benefit Plans are to Economic security and business success.

 A recent study by The Boston Consulting Group (BCG) provides some thought-provoking information about Canadian retirees with defined benefit (DB) pensions. The most compelling fact from the survey is that DB retirees receive the Guaranteed Income Supplement (GIS) 10–15% of the time, compared with 45–50% for other retirees. That represents $2–$3 billion a year in savings to the federal government.

The study was sponsored by four Ontario pension funds, including Teachers’. A recent Angus Reid poll shows a troubling situation regarding saving for retirement in Canada. The poll shows that those with household income of $50,000 or less save 7% of their income for retirement, rising to 9% for those in the $50,000-$99,000 group. In contrast, DB retirees contribute 10-14% of their income to their pension plans. So part of the reason that payouts from DB plans are generous is that DB members simply save more for retirement.

Two other responses from the Angus Reid survey are alarming: only 26% of Canadians believe that they are saving enough for retirement; and 15% of Canadians are saving nothing for retirement.

Yet much of the recent conversation about retirement savings has revolved around the perceived need to convert DB pensions to defined contribution (DC) plans.

Former President and CEO of Teachers’, Jim Leech, and Senior Writer at the Globe & Mail, Jacquie McNish, in their book The Third Rail: Confronting our pension failures, argue that while DB pensions need to evolve to deal with demographic challenges, getting rid of DB pensions would be a large mistake.

The BCG study, plus a study from earlier in 2013, show the many benefits of DB pensions, including:  

• a very low cost of investing;

• investment expertise that allows them to generate up to 80% of a fund’s assets
• through investment returns;
• shared longevity risk; and
• the ability to invest in areas that the average person simply can’t access, such as real estate, private equity, hedge funds and infrastructure.

Longevity risk is a big deal. If you are a retired with a Defined Benefit Plan you aren’t concerned about how long your retirement lasts because you know that you will receive your pension at a given level for as long as you live.

People with DC plans know how much money they have when retirement begins. Since they do not know how long they will live, they do not know how much money they can afford to spend each year in retirement.

The BCG study indicates that DB retirees are able to spend at a higher rate because they have a pre-determined steady and stable income throughout their retirement. This makes sense if your income is reliable and secure, you are able to spend freely. So instead of pitting the public sector against the private sector and DB vs DC, perhaps the conversation should be:

“Let’s fix what is broken and ensure that all Canadians have access to reliable and secure retirement income.”

Key Findings

• Defined benefit retirees spend $56–$63 billion  on goods and services each year.
• DB retirees pay $14–$16 billion in income, property and  sales taxes each year.
• DB retirees take the GIS 10–15% of the time, compared with 45–50% for other retirees, reducing the GIS payout by $2–$3 billion each year.
• The smaller the community, the greater the benefits from DB pensions. In small Ontario towns, DB pension benefits represent nearly 12% of total earnings. 75–80% of DB pension benefits are paid from investment returns. 

Job satisfaction

It's funny don't you think, that when we link job satisfaction to financial compensation alone, we are never paid enough.

Yet, when we see "work" as a way to dance with life, meet new people, and unleash the creative tiger within, we realize that we are very rich, indeed. 

Why I hate Math

Try this simple calculation to test your brain. Don't use a calculator.

Take 1000 and add 40 to it.
Now add another 1000.
Now add 30.
Now add another 1000.
Now add 20.
Now add another 1000.
Now add 10.
What is the total?
Did you get 5000? Most people do but that's incorrect.

Check with your calculator if you got 5000.

More job searching ideas

When job hunting, remember that you are not looking for just any job vacancy. You want a position where you will have a chance to express your interests and abilities. You want a job where there will be a real opportunity to learn new skills (who says you can't teach an old dog new tricks). You want a position with an employer who has a reputation for fair treatment of his/her employees. You want a job where working conditions and fellow workers are pleasant. It is very important that you try to find out as much as possible about any available position before taking it.

When I was in sales I kept a prospect file. It consists of a small filing box (obtainable at most commercial stationery stores) and 3" x 5" or 5" x 8" cards. On these cards I wrote the names and addresses of prospects for his/her products or services. As well, I  recorded remarks about the prospect's requirements, interests, etc. When I called on a prospect, I entered the date and remarks about the interview on this card.

Use this system; develop your own prospect file. In fact, keep this same practice, once you have a job. If you find yourself out of work, or wish to change jobs later, you can use your file to help you change your job.. 

The job-hunting process is a lonely one. Research shows that the process can be tracked as follows. By using a job prospect card file you can track all your no's

NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, NO, YES 

As it is a lonely process, make a game of it, focus on getting your information out every day to a minimum number of employers, and don't get discouraged by the no's. On average in today's economy it may take 6 to 10 months to get anywhere. Be patient with yourself and get your support network  working for you.

MAJOR SOURCES OF JOB LEADS

Once you have identified your job goals, the next step involves research. Here is a list of different sources for job leads. Use all of them when looking for a job.

Printed Materials

Look in daily and weekly newspapers ads as well as newspaper business sections, trade and professional journals; business directories, and the Yellow Pages. There are publications that contain detailed description of the sources you will find useful. Consult your local Librarian for current material.

Personal Contacts

Personal contacts may help you, if you have worked in a field go back to your old contacts and the people you are interested in working with on a full time or part time basis. 

The Internet 

Start with Craigs List for your city or do a google search. suggest jobs for seniors. (If you select (highlite) the words jobs for seniors and right click on your mouse, you will be taken to a google search page with lots of great leads)

This government site has information on programs to help seniors who are looking for work

There is a jobbank for senors at this link where new jobs are added every day..

The socio-economic impact of pension systems

Back in 2011 the European Commission  took a look at pension issues called "The socio-economic impact of pension systems on the respective situations of women and men and the effects of recent  trends in pension reforms” it is interesting reading and can be downloaded here (PDF file). The main highlights are below. What is interesting is that the pace of progress on reform is moving at a very slow pace; it must be sped up to meet the needs identified.

The purpose of the study is to enhance our understanding of the socio-economic impact of  pension systems on the respective situation of women and men. The goal is to present a picture  of what takes place within the 27 Member States, the three EEA/EFTA countries and the three  candidate countries (Croatia, Former Yugoslav Republic of Macedonia and Turkey). The information considered in this report was provided mainly by the national experts of the EGGSI network of experts in gender equality, social inclusion, healthcare and long-term care supplemented by a wide-ranging review of the literature and comparative data available.

The study analyses contributory and assistance (non contributory) old-age pensions, focusing on the situation of women and men (both EU and non-EU nationals), and taking into account the challenges resulting from demographic change in terms of adequacy and gender equality, as well as the gender impact of recent pension reforms. Focusing on gender inequalities, the study places pension adequacy at the centre of discussion. 

Some findings:

• Gender differences in demographic and labour market trends affecting pension income 
• Increasing demographic pressures and socio-economic changes have forced since the 1990s  European countries to reform their pension systems in order to improve their sustainability in  the long run, with significant effects on their capacity to contain poverty risks in old age and reduce gender and inter-generational inequalities.

The main factors affecting pension systems can be summed up as follows: 

a. the demographic

challenge, as, on the one hand, the first cohorts of baby boomers have started retiring, while on 

the other hand Europe's working-age population is shrinking due to declining fertility rates. 

Moreover, as life expectancy increases, future generations will have progressively more years to live through in retirement on average; 

b. the changing structure of labour markets, with the 

increasing share of part-time and flexible employment and inadequate pension rights 

portability, often resulting in short and insufficient period of contributions, affecting women in 

particular; 

c. societal change with increasing differences in household patterns, such as single or 

cohabiting households, and growing divorce or family separation rates, posing further 

challenges to pension systems based on family or derived rights.

These factors entail heavy consequences on the sustainability of pension systems, on the one

hand, and on the adequacy of pension income on the other, affecting women in particular as the gender differences observed in life expectancy, in employment and in household patterns, imply that women are likely to have lower pension entitlements than men in old age and that different 

categories and generations of women are affected in different ways.

Poverty concerns older women more than older men

Income from pensions is the major source of income for women in old age, but the pensions 

women receive are lower than the men’s. The main causes for the pension gender gap, according to the literature, are that women earn less than men on average, work more often in part-time jobs and atypical contracts. More frequently than men, moreover, they tend to work in the informal labour market, have interrupted working careers and retire earlier. All these conditions have an impact on their lifetime earnings, influencing the duration and level of contributions to their pension records and the type of pension schemes they have access to. As a consequence, income levels for elderly women across Europe are significantly lower than for the rest of the population: despite the long-term improvement in contribution-based pensions and the existing old-age allowances, in most countries ageing women continue to experience higher poverty risks than their male counterparts, especially when over the age of 75. 

The increasing challenges posed by migration trends on pension system on pension systems

Another demographic aspect to be taken into consideration is migration trends, as labour 

migration is the main source of population growth in the European Union. The challenges it 

poses in host countries are increasing, as migrant men and women present lower employment 

rates, greater proportion in insecure jobs and the informal economy, exposing migrant workers 

to more serious risks of social exclusion and poverty than the resident population, and this is 

reflected in pension entitlements. 

The issue of social protection for migrant workers is particularly relevant both for men and for 

women, but for women the situation is even worse than that of men as undocumented but also 

legal migrant women are more exposed than men to working in the informal sector of the host 

country. The choice of many migrants to go back home after reaching pensionable age 

represents an additional challenge to the European countries pension systems, involving the 

issue of the pension portability rights – an issue which has not yet received adequate attention 

on the part of policymakers in European countries.