Sunday, November 28, 2010

Preparing for a Pension Riot?

Connie Woodcock of the Toronto Sun reports, Preparing for a pension riot:

My family knows me too well. They knew I wasn’t going to react well to my birthday this year — I’d been worrying about it for months.

So last weekend, they threw me a big, fat, happy-last-day-of-being-59 party with lots of food and wine and presents and jokes and even a speech.

And really, it helped — a little.

But turning 60 is a traumatic event in your life any way you slice it. And, no, 60 is not the new 40. No matter how much you keep up with pop culture, no matter how many times a week you go to the gym, you’re not a kid any more. You may even have to abandon the term “middle-aged” soon.

In my 40s, it never occurred to me 60 would be such a boulder in my path. Sixty-five, I thought, would be terrible — the day society officially kicks you to the curb. But then my best friend hit the big birthday and it turns out 65 isn’t that bad. They start sending you cheques every month, they pay for your drugs and you get the seniors’ discount.

What’s not to like?

Sixty, on the other hand, is the day it occurs to you that you’re old enough to be someone’s grandmother.

Mostly, it makes you stop and assess your life and where you’re headed.

So imagine my dismay when I discovered that by the time I get to age 65 there may not be a monthly cheque waiting for me.

I may have to wait until age 67 — or even 70.

The federal government is being asked to consider raising the retirement age two years to relieve pressure on the Canada Pension Plan.

A report called “Is 70 the New 65?” released last week from the Mowat Centre, a University of Toronto think tank, suggests raising the official retirement age by two years would more equitably distribute pension costs among younger and older Canadians.

It shouldn’t come as any surprise to baby boomers. If you’ve been paying attention, you’ll have noticed that many Western countries — the U.S., the U.K., Germany and Australia — have already hiked the pension age. In France, they’ve had riots over it in the streets this fall.

But I wonder what this will do to people at the low end of the wage scale who have clung to their jobs for years with their retirement plans geared to age 65.

You’ll still be able to take your Canada pension at 62, but it would be much reduced, beyond what it already is if you take it early. And also last week, new stats show more Canadian seniors living in poverty.

Remember “Freedom 55”? In Canada, that’s only true for politicians and civil servants. There are lots of perfectly employable people in their 50s who haven’t held a full-time job since their 40s thanks to recessionary cutbacks. They can’t even get job interviews.

Some of them have resigned themselves to the situation and are now driving school buses or bartending or clerking at Tim Hortons. They’re not going to react well to continuing even longer.

In fact, Canadians have heard for years the CPP won’t be there for them by the time they get to age 65. That, too, turns out to be a myth since the CPP’s chief actuary has said it’s sustainable at current contribution levels.

Critics have been quick to point out because Canada raised contributions years ago, we aren’t in the same situation as other countries. But we’re living longer and the baby boomer bulge will start hitting 65 next year.

The idea isn’t really on the government’s radar yet and no government would want to be the one to actually do it. But I’m certain there’s about to be a national debate.

Selfishly, I just hope it drags on so long that I’ll sneak under the wire.

I already discussed whether 70 is the new 65. As governments clamor to reign in entitlement spending, they're cutting everywhere and increasing the retirement age. Does Canada really need to raise the retirement age? According to Bernard Dussault, former Chief Actuary of Canada, there is no imminent need to do so:

Current CPP contributors pay too much (9.9% rather than 5.5%) to the CPP because their predecessors:

  • did not pay enough into it (3.6% for 20 year, increased to 6% by 1996, etc.) and
  • got full accrual of benefit rights after 10 rather than 47 years.
Why would/should we consider penalizing further the current contributors by increasing the pensionable age? The 9.9% remains somewhat sufficient to afford the payment of pensions commencing at age 65.
In the end, I think there will be pressure to raise the retirement age. Is this fair? Not if you're sixty and working on the assembly line or at some job paying you low wages and wearing you down every day as you try to get by.

There are no easy solutions to the pension conundrum. Many Canadians over sixty and others around the world are just beginning to come to grips with the grim reality that awaits them. Their retirement dreams are slipping further away and along with them, their standard of living. That's why along with jobs, pensions will remain the hot political issue of the next decade.

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