A national pension crisis is looming

Two generations after Canada first moved to prop up the pension's of its seniors, a new group of retirees faces an impoverished future



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pensionRED DEER, Alta. Feb. 22, 2016/ Troy Media/ – Back in in the 1960s and ’70s, being old and being poor were pretty well synonymous. The generation that started their families during the Great Depression and then endured the sacrifices of the Second World War simply had no chance to build savings to last through retirement.

The nation had only recently created the Canada Pension Plan, and as that generation’s grandchildren, the baby boomers, entered adulthood, it became clear more would be needed to address poverty among seniors.

By the early 1970s, more than one in three seniors was living in poverty. The Canada Pension Plan was never intended to be a full living income, but a huge portion of older people had little else. So Canada created the Old Age Security/Guaranteed Income Supplement programs.

And the poverty rate for seniors dropped like a stone.

By 1995, barely 3.9 per cent of seniors lived below Canada’s arbitrary measure of the low-income cutoff, which was the policy-level definition of poverty. At that time, child poverty, by the same arbitrary measure, was around 18 or 19 per cent — and has sadly remained that way ever since.

For most people, retirement looked like it would be at least workable, if not comfortably rich.

Meanwhile, in the working lives of the boomers, a myriad of schemes were invented to encourage people to save for retirement. But it’s clear the incentives we invented — registered savings plans (RSPs), a growth in company pension plans, tax-free savings accounts (TFSAs) and the introduction of pooled pension plans for people without company plans, plus an explosion in the value of home ownership — haven’t worked well at all.

From that low point in 1995, poverty levels for seniors have crept back up to 11.1 per cent, says a report released last week by the Broadbent Institute.

And the future looks worse, not better, says the institute’s report.

Less than half of boomers really saved anything at all during their working lives. Despite living through an age of prosperity, with all the incentive and advice they had, many have saved virtually nothing. What were they thinking?

The Broadbent Institute doesn’t answer that question, but it does report some sad statistics on the profligacy of this generation.

Less than half of people aged 55 to 64 who are employed have a company pension plan as part of the wage packet. Private savings? Less than a quarter of Canadians contribute each year to an RSP. Fewer than one in five Canadian boomers have savings that would last at least three years. Even if you account for the equity in people’s  homes, we’re told most seniors have less than five years’ worth of assets saved.

Of existing retirees, a demographic that grows annually as a result of a new wave of retiring boomers, the average income for seniors falls about $5,600 below a median income of $20,000 a year.

How could this have happened?

One explanation is to look at the rising curve of income inequality. Are boomers really the richest generation that ever lived? The top two-tenths of wealthy people is firmly post-war. That’s where the money is.

Last Thursday, the Globe and Mail published a special section on estate planning for that group. Gotta plan for who gets the cottage, the summer home or the winter escape when the boomer parents die.

Except that a large part of that demographic earned less than $50,000 a year all their working lives. The Broadbent report says they hold something like $250 in savings. In the group that earned $50,000 to $100,000 a year, the average savings is around $21,000.

Go to any online retirement planner and it will likely tell you that you need a million or so in the bank to retire in the manner most people say they expect. That’s quite the gap from reality.

Two generations after 1973 and the same problem looms, with the same response suggested. Boost the Guaranteed Income Supplement to something closer to a living income, says our new Liberal government. That notion is supported by the Broadbent Institute report.

Only this time, instead of taxing the rising incomes of boomers to pay for it, we’ll be taxing the stagnant and falling incomes of millennials.

Because God forbid we should tax the incomes of wealthy baby boomers, or the incomes of the boomers who actually did save diligently for retirement.

The common-sense response — save for the future — applies no more to individuals than to governments. Only a few individuals — and very few governments — seem to have that kind of sense.

Greg Neiman is a freelance editor, columnist and blogger living in Red Deer, Alta. Greg is also included in Troy Media’s Unlimited Access subscription plan.

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