Pensions in Canada inadequate

Talbot Boggs - July 29, 2008: Sympatico MSN

(Special) – A recent report has added still more depressing data to the growing plethora of evidence indicating Canadians aren't financially prepared for retirement.

The Association of Canadian Pension Management (ACPM) says in a report the typical pension plans being offered to Canadian workers won't make a "meaningful" contribution to the creation of an adequate retirement income for them.

The report, Delivering the Potential of DC Savings Plans, says that only 25 per cent of people working for private employers have a registered pension plan of any sort, and employers are favouring group Retirement Savings Plans or no plans at all over defined contribution plans.

Other reports show that between 1991 and 2004, the number of paid workers in Canada covered by a Registered Pension Plan declined to 39 per cent from 45.3 per cent at the same time as the proportion of workers covered by defined benefit pension plans is declining.

Individual and group RSPs are defined contribution plans in which the amount of contribution is fixed at a certain level while benefits vary depending on the return from investments.

In some cases, employees make voluntary contributions into a tax-deferred account which may or may not be matched by employers. The level of contribution may be selected by the employee within a range set by the employer, usually between two and 10 per cent of annual salary.

Defined-contribution pension plans, unlike defined-benefit pension plans, give the employee options of where to invest, usually in stock, bond, and money market accounts.

A defined-benefit pension plan, however, promises to pay a specified amount (based on a predetermined formula) to each person who retires after a set number of years of service.
Defined-contribution plans have become increasingly popular in recent years because they limit a company's pension outlay and shift the liability for investment performance from the company's pension plan to employees.

A recent study by the Canadian Institute of Actuaries and the University of Waterloo concludes that two thirds of Canadian households expecting to retire in 2030 are not saving enough to meet necessary living expenses such as food, shelter, clothing, transportation, health care and taxes.

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