February 24, 2016
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By many accounts, the pension crisis is imminent. According to the Canadian Labour Congress (CLC), seniors make up about 16% of today’s population. In a generation, as baby boomers age, that number will dramatically increase to nearly 25% of the population. By 2022, over 3 million workers are expected to retire – or will they? Many will not be able to afford to retire.

A recent Globe and Mail article noted that fewer than 20% of middle-income families have saved enough to retire. Even more terrifying, among all Canadians aged 55 to 64, only half have enough savings to last for one year. This means the number of seniors living in poverty is going to increase in the coming years, and many of these will be single women.

Stagnant wages, increasing costs of living and limited savings have contributed to the crisis. A primary cause, however, is the dwindling access to good workplace pensions. The CLC says that less than 25% of private sector workers have access to a workplace pension, and the number falls to just 13% for workers under age 29.

If Canadians are going to avoid a pension crisis, urgent action is needed. Ontario’s Liberal government is proceeding with its promised Ontario Retirement Pension Plan, while Ottawa has deferred a decision for a year on whether to bolster the CPP/QPP, in order to consult with the provinces and territories.

But this will not be enough. The Canada Pension Plan pays out a maximum of $12,780 a year. But many retirees don’t qualify for the maximum – the average CPP payment for men last year was $7,626, while the average for women was $5,922. Seniors also collect Old Age Security payments to a maximum of $6,839, while the poorest seniors can collect the Guaranteed Annual Income. The combined plans fall below $20,000 for an individual.

As noted in our previous post, people who attack pensions say they’re too costly and that employees are better off managing their own pension. We suggested the logic behind those attacks was questionable.

Retirement income is incredibly important. When looking at pensions, knowing the facts is essential:

  • When a defined benefit pension has been eliminated and people manage their own money, the overwhelming majority of people who do so end up worse off than if there had been a company pension.
  • People who manage their own money have to make individual decisions, which means even smart single investors can’t be good pension investors – they are not able to spread risk over the long term.
  • When employers move from defined benefit to other kinds of pensions, they often end up with greater deficits than if they had simply continued with the plan.

Unions, on the other hand, continue to offer employees a sustainable alternative. While many people question the utility of a unionized workplace, we have to look to the fundamental work done by unions to create, and keep, employer pension plans. Labour groups provide a series of options to address the challenge, and the power of both negotiating and investing as a larger group has proven effective in unionized workplaces. Labour groups have been instrumental in reversing plans to raise the age of eligibility for Old Age Security (OAS) and the Guaranteed Income Supplement. Unions are also instrumental in ensuring retiree benefits – the continuation into retirement of health and dental benefits is key, as it can be difficult or impossible if you have health issues to find private coverage at the time of retirement. And even if the benefits can be procured, the cost is often prohibitive. A lack of proper retiree benefits only further compounds the financial squeeze felt by many seniors.

The current situation should be a cautionary tale for younger members in the workforce when assessing the real value of union membership. Anyone questioning the importance of union representation should consider the labour movement’s role in advancing meaningful wages, job security, and retiree benefits – all important components of ensuring a comfortable and dignified retirement. Workers should not have to struggle to make ends meet in their retirement. After a lifetime of contribution in the workplace, seniors deserve better than a tin of Fancy Feast for dinner.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Labour Law