In recent years, public pension plan reform has been making headlines all over the country. As early as 2012, the federal government announced its decision to gradually raise the age of eligibility for the Old Age Security (OAS) benefit and the Guaranteed Income Supplement (GIS) starting in 2023. Even though these programs comprise only a marginal portion of our pension system, the announcement had its impact: from now on, retirement would be at 67.
The tip of the iceberg
Actually, the pension eligibility age is just one of the many changes that our governments, both federal and provincial, are currently looking at as a way of dealing with what is considered to be the new retirement challenge. And they‘re not the only ones: within the Organisation for Economic Co-operation and Development (OECD), the majority of countries are testing a whole arsenal of new measures to maintain the viability of their pension systems:
Elder boom on the way
It would seem, in fact, that there is a dual challenge: while life expectancy is continuing to increase, the birth rate in developed countries is dropping or stagnating. The result? If no adjustments are made, not only will our retirements be longer than before, but there will be fewer active workers to provide funding for the existing pension plans. Studies done by the OECD estimate that the worker/retiree ratio will decrease significantly in the near future: among member countries, on average, it is expected to drop from the current level of 4 workers to 1 retiree to 2 to 1, or even 1 to 1…
...in the space of just 20 years.
No universal solution
Pushing back the age of eligibility for a pension seems like a natural solution: by working longer, we should be able to contribute more to the plans and thus relieve the pressure on the coming generations.
In fact, along with this measure, a number of others have already or soon will come into force in this country. For example, in Quebec, workers now have access to a voluntary retirement savings plan, the VRSP. As well, the Ontario government is taking steps to establish a new mandatory pension plan that would provide income to complement the Canada Pension Plan.
A signal that can’t be ignored
The new measures vary from place to place, partly because each jurisdiction and country has to deal with its own particular financial, economic, cultural and historic factors. And among all of these factors, there is one that just might deserve our special attention: the percentage of retirement income provided by the government.
This reveals the importance, for Canadians, of employer-sponsored supplementary pension plans, registered retirement savings plans (RRSP), and tax-advantaged savings vehicles such as the TFSA. But, according to Statistics Canada, less than half of all Canadian workers are covered by an employer plan and less than one-quarter contribute to an RRSP.
In other words, no matter what action our governments might take, it will only affect a portion of our retirement income; the rest will depend directly on the retirement savings strategies that each of us implements for ourselves.
And here, too, it might be time for some reflection!