In the current editorial of MoneySense (April issue), I talk about our theory that one reason the magazine launched when it did—15 years ago—was that this was around the time the trend of the decline of traditional “Defined Benefit” employer-sponsored pension plans had gotten well under way. Defined Contribution (DC) plans, RRSPs, group RRSPs and the new PRPPs (Pooled Registered Pension Plans) are all fine vehicles but they do require more investing knowledge and therefore put investment risk squarely on the shoulders of plan members rather than employers.
Our suspicion that most would prefer the guarantees implicit in old-time DB pensions was reinforced Tuesday, with the release of a white paper on retirement adequacy by the Healthcare of Ontario Pension Plan (HOOPP). Entitled Retirement Income Crisis: Inevitable or Avoidable? The Economic Reality, the Boston Consulting Group and the Gandalf Group find 79% of Canadians “want pension plans at work that have guarantees around future income” while 65% feel the economy may suffer if the trend continues in the direction of inadequate retirement income. It also finds that in Ontario alone, retirees with DB pensions spend some $27 billion a year on goods and services, paying $3 billion in income taxes and another $3 billion in sales and property taxes. It also found those in DB plans are “far less reliant on the taxpayer-funded Guaranteed Income Supplement program,” meaning they are less of a drain on that portion of Ottawa’s coffers.
You can find a PDF of the paper here.
Findependence Q&A for young people
Who knows what kind of pensions today’s young people might hold once they’re as firmly entrenched in the workforce as the boomers still are? Many are finding it tough enough just to get their first step on the career ladder, let alone worry about such far-away prospects as retirement. In any case, DB plans as we know them today will be even rarer a generation from now, if they exist at all. All the more reason why young people should investigate new programs like Tax Free Savings Accounts (TFSAs) and PRPPs. I just conducted a two-part Q&A on financial independence for young people at Money on Trees, the second part of which can be found here. Part 1, posted last Thursday, is here.