Complicated forms and endless phone calls mean that many end up not getting the help they need. In the recession more people are finding themselves reliant on unemployment benefits for months on end with no help to get a job.

We believe that people who want to get ahead should be supported and older people deserve a pension they can live on. Those without a job need help to get back into work and earn a decent living. People who’ve fallen on hard times should get a helping hand. We have affordable plans to increase the basic pension and link it to earnings so pensioners are better off.

The finance ministers recently met to discuss the state of pensions in the country, ranging from company programs, Canada/Quebec Pension plans and what to do about those who have no pensions. No doubt other issues were discussed as well.

There have also been several articles in the news about a “Universal Pension Plan” intended to provide incomes for those individuals who are not covered by any company program, and where federal benefits are not sufficient to provide for seniors in retirement.

It is amazing how a mini recession can wake up people to the fact that seniors for the most part do not have adequate retirement income. This has been known for years, along with the fact that we have an aging population. Why has it taken so long to address this concern?

Canada Pension and Old Age Security

The unfortunate part is that there is no easy solution. Improving the Canada/Quebec pension plans to pay higher pensions will affect some of the citizens of this country but not all. Also the cost of making improvements must be borne by both the employer and employee.

Are improvements affordable? It is certainly time to review the government programs but without hurting the existing retirement community, and to be keenly aware of any cost implications in doing so.

To increase the pension that CPP would pay means that there would potentially be an unfunded liability determined by the actuary and this improvement has to be paid for by someone; likely the Canadians that pay into the plan.

One option regarding the Old Age Pension is to cease paying those whose income exceeds $70,000.00 on an individual basis rather than taking away the entire amount once incomes exceed roughly $105,000.00.

Universal Pensions

As for a universal pension system, one has to take into account many elements to make anything viable, cost effective and to generate a reasonable income.

The premise seems to be that the program would be along the lines of a defined contribution plan where an amount of dollars would be paid into the plan, invested in some form of investment, and at the end of the day the assets would be used to provide a source of income. It has also been suggested to allow an individual to “opt out” at some point in time. Well that sure defeats the purpose of providing for retirement income! Why bother to set up a plan if you can get out later?

How does one establish a registered pension plan without making it mandatory, and attractive enough to allow people to save for retirement?

If it is made mandatory (and it should be), who has to contribute? Does this not impose on the right of the employer to decide about benefits? How does it apply to employees already working for that employer. For example, say an employer establishes a formal pension plan on January 1, and has 15 employees. It is unlikely that you can mandatorily enrol those 15 employees. How does this help those 15?

Voluntary programs essentially exist at this moment via the RRSP, and statistics can be obtained to show that for the most part few people contribute significant amounts, and the average asset held by individuals is totally insufficient to generate any decent level of income.

Without knowing what people need to live on ( rule of thumb would be 70% of gross income), but to give some indication what an RRSP can offer at age 65, if one had $100,000.00 in assets, and converted those assets to a RRIF it could generate, as a minimum, about $4500.00 per annum, and gradually increasing thereafter. More can be taken but if this happens assets reduce quickly and eventually run out.

What happens to those assets when the market takes a significant downturn as we just experienced? The $100,000.00 could well end up at $60,000.00 thus affecting the annual amount as well. Yes the markets will go back up but in the mean time the income and stress levels have been adversely affected.

Possible solution #1

If the intent of government and/or other bodies is to encourage retirement savings then do the following:

• Have employers without a pension plan set up a defined contribution plan for all its employees. Employer and employee contributions are tax deductible.

•   The contribution rate by each party would be 5% of pay. While this is high it would ineffective if the contribution rate was small. It is also recognized the financial hardship people      are aware at this time.

•  Administrators of the pension plan would need to offer some incentive to employers such as no fees or greatly reduced fees, as well as a multitude of investment options.

• The governments, either one or both (as the plan must be filed with both Federal and Provincial authorities) should offer some incentive as well such as a rebate of say $100.00 per participant, gradually reducing to zero say in 5 years.

Pros: administration is easy, and inexpensive; employees should appreciate that attempt to generate retirement income; young employees over time will build a nice nest egg; cannot be cashed out

Cons: market value could affect retirement income as just seen; will do little for older employees; affects net income at a difficult time financially.

Possible Solution #2

The federal program now has in place a minimum income level upon which is based how much a person can obtain from the GIS programs as well as GAINS in Ontario. This needs to be revisited as it is likely out of date as to the level applicable and the rising age of the Canadian public.

Summary

It is time for someone to recognize the issue of inadequate income many most Canadians. It is not the fault of anyone at this point in time but the longer this problem is ignored the bigger it will become. One cannot expect individuals to fend for themselves as this will not happen. Nor can one expect the government to look after those who cannot or will not do any retirement savings. There needs to be a co-operative effort between all individuals, whether they be government, employers or individuals. Time to move on!