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© Copyright 2000 Rogers Media. The following article first appeared in the March 2000 edition of
BENEFITS CANADA magazine.
The future of retirement
Have we outgrown retirement? Our roundtable explores what's ahead for Canadians and the culture of
entitlement.
MODERATED BY KEVIN PRESS
It is a time for difficult questions.
Does retirement still make sense? Is our government's role sustainable amidst the crushing impact of
Canada's aging baby boom? Can employers continue to play their role effectively in a pension regulatory
system so filled with trepidation? And what of individual Canadians? Are your plan members ready? Are they
taking the necessary responsibility to plan for their own retirement? Is their financial planning supported
by a fair and reasonable tax system?
While Canadians are living longer than ever, is it realistic to put down our work tools at such a young
age?
benefits canada's 12th annual roundtable brings together seven of the most important thinkers on the future
of retirement. Our panel represents government, employers and individual Canadians, all of whom face what
may be among the most radical policy reviews this country has ever known. Bob Baldwin is national director,
social and economic policy for the Canadian Labour Congress. Dian Cohen is an economist, author of The
New Retirement and a benefits canada columnist. Catherine Drummond is director general, program policy
and planning, income security programs branch with Human Resources Development Canada. Stephen Gould is
relationship leader/vice-president, human resources at Amex Canada Inc. Malcolm Hamilton is a principal
with William M. Mercer Limited. Glorianne Stromberg is the author of two key industry reports:
Regulatory Strategies for the Mid-'90s and Investment Funds in Canada and Consumer
Protection. Gretchen Van Riesen is director of pension and benefits policy at the Canadian Imperial
Bank of Commerce. She also chaired the Association of Canadian Pension Management (ACPM) task force which
has produced a new paper entitled Dependence or Self-reliance: Which way for Canada's Retirement Income
System? (See page 77 and visit www.benefitscanada.com/news/news.html#story268 for a full report on the
paper.)
Forget about retirement
Dian Cohen: Retirement is a really old-fashioned idea. We're now in the 21st century--the digital
revolution has been accomplished. The concept of a job as we know it, and retirement from that job, is an
industrial concept. We're not living in that kind of world anymore.
Glorianne Stromberg: It's time to forget about retirement. Instead we should be concentrating on
achieving lifetime self-sufficiency and financial well-being. That should start from the minute you're born
and end when they bury you. If you approach the issue from that standpoint it changes the whole dynamic of
what you as an individual are going to do, and what you expect the state to do on a broader scale.
Bob Baldwin: If you want some predictability in future income, there's got to be some sacrifice of
individual choice for the sake of a group program--whether it's a group program in the workplace or a group
program in the broader society.
Timing is everything
Catherine Drummond: Hardly any Canadians work until age 65 now. Yes, the official retirement age is
65 for Old Age Security (OAS). But the average retirement age is now 62. People who have [employer] pension
plans tend to be retiring earlier.
Cohen: How can we be talking about a system that forces people to consider being unemployed for 25
years? You know, when Otto von Bismarck invented them, people didn't live that long.
Malcolm Hamilton: There's a fundamental confusion here--between how long people live and when they
grow old. We tend to view them as synonymous. I don't know how many times I've heard the argument that
Canadians are living five years longer than they did 30 years ago, therefore they should retire five years
later. I never hear that they should go into elementary school at age 11, which would be equally logical.
We've prolonged life, but we've not prolonged youth. Humans are aging much as they did 2,000 years ago.
This notion that we're going to have 65-year-old baby boomers out there competing head-to-head with
25-year-olds for programming jobs is just a pipe dream.
Stephen Gould: We haven't had an issue with forcing people out at 65. Our issue is that too many
people have done too good a job of retirement planning, and they're going to leave in their early 50s.
Gretchen Van Riesen: We're creating incentives in the system for people to leave early. The war for
talent is an issue.
Baldwin: In most work settings it's been an absolutely easy point of agreement between employers and
unions to lower the age of eligibility for retirement.
Hamilton: I've not had one company or one employer come to me and say we've got to do something
about this pension plan because we're losing too many older workers.
Van Riesen: It's not a problem today, but it is a future problem.
Baldwin: If labour markets tighten and it does become a problem, my guess is you'll find incentives
offered outside the framework of the pension plan just because there's a lot more discretion in dealing
with people individually.
The aging society
Drummond: Society is aging not because people are living longer, but because the birth rate has
dropped so dramatically in Canada. And it probably isn't going to go up. The interesting thing in an aging
society is how things are going to work with so few young people, and the labour market implications of
that. We have to be paying attention to productivity and how the labour market works. Maybe working time
won't be the same. We have to concede that there is going to have to be a certain flexibility that hasn't
been there through this last generation.
Van Riesen: Like the government liberalizing rules to allow us to do phased-in retirement more
effectively.
Drummond: Phased-in retirement, different sorts of working weeks. I was in Denmark recently, and it
was extraordinary how many people were on four-day work weeks or other kinds of flexible work arrangements.
It is just accepted there.
Hamilton: I have a sort of pessimistic view of the workplace. I think most people, as they approach
50, would rather not be working. There are lots of exceptions, but in general that's the rule. They're
there because they get paid, and they're there because they don't have a choice. The minute they think they
do have a viable choice, they drop their career job. Now, they don't become inactive. They have decisions.
Some of them might do something more like hobby work. I don't see many assembly line guys looking for more
assembly line work.
Cohen: The assembly worker is not going to want another assembly job, but I also think that a
50-year-old will not be rocking on the porch.
Hamilton: Employers are a bit complacent because they've had the luxury of having this large baby
boom population--more people at working age than there were jobs. Employers had the upper hand. It's a very
different thing when you're dealing with a 58-, 59- or 60-year-old who for all intents and purposes is
financially independent and frankly doesn't care. In fact, the best thing that could happen to them is you
fire them and give them a severance package. Employers are going to find that working with that kind of
individual isn't quite the same as working with a 45-year-old with a mortgage and two kids to put through
university who's got to do well on the job. That's going to come as a bit of a shock.
Worker myopia
Gould: Our company offers a fairly generous group registered retirement savings plan (RRSP). Yet
only 50% of the people we employ full-time participate in it. That's odd because they get an automatic
return of 50% on their dollar. It's a constant eyebrow-raiser that there aren't more people involved.
That's people in their 30s, 40s and 50s. When we talk to [employees] about what they would like in their
basket of compensation, they're very interested in not having any pension benefits. They want cash now so
they can decide what to do with it.
Stromberg: At the heart of why more people are not participating in your group RRSP is that they
simply do not understand the time value of money.
Hamilton: I have no trouble understanding why they're not in the plan. When I look at the average
Canadian family and what they spend on their kids, their mortgages, retirement savings and taxes, their
standard of living is no better than that of seniors who never save a penny. Why on earth would they be
saving? I have no trouble understanding why Amex employees behave the way they do. A lot of them just don't
have a lot of spare money.
Drummond: I take your point that we're highly taxed in Canada, but worker myopia has been around in
every society for a long time. That's why public pensions developed.
Gould:I don't think that a lot of our people in their 20s have the same mortgage, children, family
and other obligations that are drawing on their resources. They're telling us that they would prefer to
have the cash now. What surprises me is that I think the 20-year-olds we're hiring out of university
should, or do, understand the time value of money a little better than 20-year-olds did 30 years ago.
They're just not interested.
Cohen: I think that more and more people have decided that they have choices, and they want to
exercise their choices.
Van Riesen: We're starting to see baby boomers--who have been demanding defined contribution plans,
a lot of choice and a lot of flexibility--starting to ask about defined benefit pension plans again.
Stromberg: They like the certainty.
Van Riesen: It's just starting to happen--there could be a reverse trend coming. But it's early yet.
Choice is still better.
Kevin Press: The regulatory burden on pension plan sponsors is onerous. Do you foresee a time when
employers pull back?
Van Riesen: Oh yes. I would say a defined benefit plan for a new company is pretty much a
non-starter. We're seeing a real change to a less paternalistic mentality. I even see a future where we
might have total flexible compensation. We might say: "Here's your cash compensation, how do you want it?"
Government's part
Bob Baldwin: There isn't a public finance reason to worry about being able to retire. You don't need
to worry that our public programs--either health or pension--will be excessively burdensome by the time you
retire.
Cohen: I have a real problem with [the assumption] that there will in fact be government-supplied
social programs. There is enormous evidence that this is not going to be possible. Government is finding it
increasingly difficult to coerce us into giving them the revenue they need to fund the programs they want
to deliver. This system--whether it's the tax system, education system, health system or the pension
system--is unsustainable.
Drummond: It's fine to say there's overwhelming evidence that social programs won't be available,
but I don't see the evidence. I see overwhelming evidence that they will be. This is the structure that
Canadians have chosen for themselves. The studies that I've seen say the cost of OAS will be another 1% of
gross domestic product (GDP) when we're at the peak of the baby boomers' retirement. But on the other hand,
the cost of education will be decreased and there will be a different balance of government programs. The
Canada Pension Plan (CPP) is not a government-funded program. It includes a pretty cheap disability
insurance for everyone who pays into it, and a reasonable return for every generation on retirement income.
The behaviour of government
Hamilton: I worry about the behaviour of government. And frankly the more I hear the more I worry.
Let's take this education point for example. I've heard this for a long time, that we'll have more seniors
and fewer students. The government forever predicted a big decline in the cost of education. But the
reduction in education-aged people is over. We grew the workforce numbers and we didn't cut spending on
education at all. What we have consistently been denied is an aging paper that was promised in 1994. It was
going to set out how the government was going to deal with these things. That's all that anybody was asking
for. I hear we've got projections that say Medicare will only go up by 1%, even though we'll have twice as
many old people. I live in a country that is in the best of all circumstances demographically, and it can't
even seem to provide emergency care with current spending on the medical system.
Van Riesen: ACPM has been asking for an aging paper for several years now.
Drummond: Yes, Canadian society is aging. I believe that the numbers are manageable. If you look at
the dependency ratio, it was worse in 1951 and it was worse in the 1960s than it will be at the height of
the baby boom. The other thing is, we always talk about the funding of pensions as if the whole pattern of
work and retirement will stay static through the next century. But it wasn't static through the last
century.
Gould: I'm not concerned whether or not there will be enough money to finance CPP. We've noticed in
the past couple of years how quickly governments can move to find money. It's amazing how they can switch
things around if the need is there.
Van Riesen: That's not a risk I'm prepared to take. I think counting on government to work this out
is dreaming . . . We have a baby boom bulge coming through the healthcare funnel, and it's going to be a
big hit. You have to be ready for that. Who's doing the planning?
Cohen: Government has really tried to protect citizens from risk--the risk of being unemployed, the
risk of having no money after you work. But there are risks to living. The way government-supplied social
programs are designed keeps citizens dependent. Canadians have to understand that they're on their own. You
want to not do what you're doing in five or 10 years? Fine, start saving your money.
Save, save, save
Van Riesen: It's dishonest to tell people at lower income levels to save, save, save, knowing that
someone at the lower level who is going to rely on OAS and CPP--total of about $11,000 per year--is going
to have 70% of the next $80,000 of savings they might have squirreled away at a much lower tax rate, be
clawed back.
Drummond: When you say that, you're suggesting the government is being dishonest. The industry is
the one telling people to save and put their money into RRSPs.
Hamilton: What is the government's view of low income Canadians? Should they be saving or not?
Drummond: I think that if you're capable of saving then you should. You're always better off if you
save. But I have to recognize that if you happen to be low income--if you're a single mother for instance
in this country with not a very high education--you're just barely making it. You can't save. That doesn't
mean though that at some other point in your life you won't be better off and be able to save.
Press: There are calls to raise the limit for RRSP contributions made by members of corporate
pension plans. What's Ottawa's view on that?
Drummond: I think there is probably a legitimate point to be made for increasing the RRSP limits.
But I would feel more persuaded by it if more Canadians were coming near the limit. I'm more concerned
about the number of Canadians who aren't even accessing RRSPs. That's what worries me.
Van Riesen: At lower income levels, it's a disadvantage to save.
Drummond: It appears, even at higher income levels, people are not.
Hamilton: The silly thing is that if nobody is at the limits, why would you care about increasing
them? It wouldn't cost a penny. This is a vindictive thing. [Government is] saying: "We want it [to be]
hard for these people to save for retirement. We are not very good at demonstrating that it would cost the
government anything to let them save in a tax shelter. But we just don't like the appearance of Canadians,
with good incomes who pay lots of tax, being able to save for retirement in a tax-effective way so they can
continue to have good incomes after they retire."
Lifetime self-sufficiency
Stromberg: It's wrong to continue to focus on retirement as opposed to focusing on what a person
needs to do to ensure his or her financial well-being and the achievement of lifetime self-sufficiency.
That's the focus. When you start working, you need to understand your cash compensation and how you want it
paid. Do you want it paid immediately? Do you want a portion of it invested in a way that will provide you
with deferred income at a given point in time? We need to implement a much better understanding of the
issues, the choices, the trade-offs than we have now. That's why one of the core recommendations in my
report was the need to concentrate on improving basic education in the very earliest stages. People mock me
but I said junior kindergarten isn't too early. I still think that.
Van Riesen: It's not enough to educate them about the answers. Educate young Canadians about
what questions they should be asking.
Drummond: You'll be pleased to know we've made some small strides on that front in Canada. Although,
as you know, with 12 different education systems it's no easy thing. We actually ran a pilot of a
course--on the CPP which we're now expanding to include OAS and the whole retirement income system--in
partnership with the department of education in Nova Scotia. It was a huge success in the schools. There
seems to be increasing recognition that kids need to begin at an early age. The amazing thing is that the
teachers learned as much as the young people. Nearly all of the young people went home and talked to their
parents about it, and then we heard from the parents--they wanted to ask us some questions.
*** ***
German Chancellor Otto von Bismarck introduced the first national social
security program in the 1880s, which set the retirement age at 65. Even as late as 1955, developed world
life expectancy at birth was just 66 years.
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Michel Nadeau, senior vice-president, core portfolios and deputy general manager at the Caisse de
dépôt et placement du Québec in Montreal told BENEFITS CANADA: "The [defined benefit] plan
is a mature product. Computer companies, service companies--none of these new economy firms are introducing
a DB pension plan." (see www.benefitscanada.com/Content/1999/11-99/ben119901.html).
*** ***
From the ACPM's new report entitled Dependence or Self-reliance: Which way for Canada's Retirement
Income System?: "The system fails to reward those who work and save. For example, at the lower end of
the earnings scale, a single Canadian collecting $6,000 from CPP and $5,000 from OAS will find that more
than 70% of the first $80,000 of his or her pension savings will be lost to taxes and GIS clawbacks. This
person was probably in a 25% tax bracket while contributing into the RRSP. Where is the incentive to save
in these circumstances?" (see www.acpm.com/ACPMenglish/documents/dep_selfreliance.htm.)
*** ***
Finance Minister Paul Martin on CPP's long-term viability this past December: "Current evidence indicates
that the changes we put in place two years ago will be sufficient to sustain the CPP. Canadians can rest
assured that the CPP will continue to provide the retirement pensions and other CPP benefits that they
depend on."
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According to Statistics Canada, unused RRSP contribution room grew steadily between 1991 and 1997. In 1991,
71.2% of RRSP room went unused. By 1997 that figure had risen to 88%.
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