Hard questions about retiring easy (Editorial)

Will the pension system be there when workers need it?

There are two classes of workers. Those with pensions and those without.

Most government employees are in the former group. The latter is made up of private-sector workers. Outside government employment, it’s a smorgasbord of defined benefit plans in a mixed state of solvency, defined contribution plans with no guarantees and no plans at all. And with employers concerned about the cost of pension plan sponsorship, what private-sector workers get may not see the group into a healthy and secure retirement.

It’s a problem being experienced across the developed world. Societies are aging, global competition is squeezing employers, governments are having difficulty making ends meet and social programs are hard pressed for cash.

Canadian workers are not alone in wondering if the pension system will be there when they need it. In the United Kingdom, concern over pensions has led to a government-launched review. It’s hard to get government action on something as complex and over-arching as long-term pension restructuring, but the U.K. seems to at least be putting the issues on the table. As Keith Ambachtsheer notes on page 16 of this edition, there are recommendations coming out of the U.K. that seek to go beyond discussion and towards revolutionary change.

The U.K.’s universal national pension, like the Canada and Quebec Pension Plans, just doesn’t offer enough for people to live on after retirement. And employer plans fall short of covering everyone. Furthermore, the costs and liabilities connected to sponsoring pension plans are causing erosion in how many workers are covered by employer plans, and how well they’re taken care of when there is a plan.

The recommendation of the U.K.’s pension reform commission is to create a national system for all workers who don’t have an employer plan, and require employers and employees to pay up to $6,000 a year into it. In essence it makes employer-pension contributions mandatory. Is this something Canada needs? Is there a government that would introduce this? Is this type of government interference palatable?

On the one hand, government must concern itself with the needs of citizens, and there is a question of fairness. Why should the government have to shoulder the cost of providing social security nets for retired employees whose firms don’t provide for their retirement while other organizations take on the burden? Why should government employees be assured of taxpayer-funded retirement security while many of those same taxpayers can expect little beyond CPP in their senior years?

However, mandating an initiative of this magnitude would be a hard sell to employers already feeling global competition pressures. And given the political splintering between federal and provincial jurisdictions during an era of minority government, don’t expect any pension reform champions to take this one on.

Canadian pension regulators and decision-makers have been working to improve accountability and governance in employer-sponsored plans through the development of Guidelines for Capital Accumulation Plans. And a Task Force on Common Pension Standards, also set up by regulators, is seeking to harmonize laws and regulations across the country.

But there’s more to discuss than best practices within the current system. Like the U.K., Canada would benefit from a national commission that looks at the entire notion of retirement, and what it takes to put away enough money to prepare for life as a senior. Otherwise there’ll be too many people arriving empty-handed and unprepared for their golden years, and that’s a burden a future government shouldn’t have to bear.

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