Pensions

Thursday, June 30, 2011
Arriving at the office early this morning, I took a few minutes to check the news headlines, emails, Facebook, etc. One story that caught my eye was about UK teachers and civil servants who went on strike to protest proposed changes to their pensions by the government in an attempt to help reduce costs, the country’s deficit, etc. While I believe the government should reduce spending in other areas first (military, unnecessary programs, etc), I understand why they’re looking at changing their pension system for gov’t employees. Before anyone starts bitching at me, I confess - I’ve been a public servant for over five years now.

Sure, I’m expecting a pension when I retire – I was promised one and its one of the big reasons I continue to work for the government. However, the majority of my time with government has been in the pensions field so I know more than the average citizen, including my fellow public sector workers. I know how much pension plans cost the employers, what it takes to keep the plans funded, and the reasons behind the contribution rate increases so many employees complain about.

Many governments and large companies historically offered their employees a defined benefit pension. In a nutshell this means your benefit paid when you retired is set at a specific rate (based on age, salary at time of retirement, etc) but your contribution rates will change over time.. Definitely better for the employee but not so good for the employer. However, times are changing and many are switching over to a defined contribution pension. Much better for the employer but the future becomes uncertain for the employee – contribution rates are set but the benefit you receive when you retire depends on investment returns (could be good or you could end up with almost nothing depending on how well the funds were invested).

One quote from the Reuters article really struck me and it’s the same thing I hear over and over again from my fellow public servants:

“I'm worried about my own retirement because when I add up what I'm going to get, it's just not liveable," said Simon Korner, a 54-year-old lecturer.

Sorry Mr. Korner but that’s not entirely the government’s fault.

I’ll be the first to admit that the government and other employers who offer pension plans (of any kind) do very little to educate their employees when it comes to retirement. Your average Joe (or Jane) assume, very much like Mr. Korner, that the pension they’ve been promised will be enough to live on once they retire. That’s not how it works. People have to take responsibility for their own retirement.

One of the things I’m most afraid of is what will happen to me when I retire. CPP and Old Age Security, on average, amount to less than $1000 per person per month. And yet, I bet if you asked, the majority of Canadians polled would think that these two things will take care of them once they start working. If they were, what would be the need of RRSP’s or workplace pension plans? And speaking of those pensions everyone’s so worked up about…how many of those fortunate few have taken the time to look into what their benefit will be (roughly) when they retire if all goes well?

Don’t worry, I’m not trying to pass the blame. Both government and the employees in these sorts of situations need to take responsibility. The government (or the employer) needs to educate their employees on how pensions work, what they can expect, and work on promoting financial literacy not just for employees but their citizens as well. Financial literacy is something that should be taught in schools from an early age. I’m definitely a fan of scare tactics when it comes to something like this. There are 30 million + people in Canada. How can we possibly expect that they’ll be instantly supported or taken care of once they hit 65?

And the employees? Take a more active role in your financial security. Ask questions. Find out what you can expect to receive when you retire. How will your pension be paid out, can you access the funds in an emergency if you need to, demand details!

While I sympathize with the striking workers in the UK and other parts of the world, fighting to save their pension entitlements, during these tough financial times I find it bizarre that people are still relying so blindly on their governments to provide for them. When it comes time for me to retire, I will count myself very fortunate indeed if there is anything left both in our national pension plan and my employer pension plan but I’m not naïve enough to think that whatever I’m lucky to receive will be enough to keep me clothed, fed and housed.

3 comments:

Adrian Lee said...

Anonymous from England here again.. but my name should appear this time!
I think you’ve hit the nail on the head here and I think most people over here would agree with you. The strikers don’t have a great deal of public support because many of us in the private sector are facing the same issues. My pension scheme has just announced that it’s going to change from a defined benefits scheme to a defined contributions scheme - leaving me worse off - but I understand why it’s happening and I grudgingly accept it.
It isn’t ideology or politics - its arithmetic! People are living longer now than anyone anticipated years ago and life expectancy will keep on rising, whilst returns from stock markets have reduced. It doesn’t take a genius to understand that we need to save more, save for longer, and accept that our pensions might be smaller.
Even with the proposed reforms/changes public sector workers in Britain will still have more secure pensions than the rest of us in the private sector. So sympathy for their plight is somewhat muted over here.
Unfortunately there’s more to this dispute than just pensions. The unions in Britain have made up their minds to stir up trouble for the government and this is just one dispute that they are milking as much as they can in the hope of splitting the coalition and forcing a general election.
I agree with the points you make about financial education and about citizens taking responsibility for their own futures. I take the attitude that HM Government only decides when I qualify for the state pension - but it’s me who decides when I retire!
Regards - and Happy Canada Day!

Barbara Bruederlin said...

I've never worked for an employer who offered a pension, so I've always been well aware that I need to invest in my own retirement. Our investments have really taken a hit over the past couple of years though, which makes things a little more scary.

Heather said...

I have a defined benefit pension, and I'm so grateful for it. But I do wonder how long it will last, and what will happen to me if it doesn't.

I suspect we'll all be working much longer than we want to.

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