© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the May 2006 edition of BENEFITS CANADA magazine.
Editorial: Fiction 55
It’s time to bring retirement expectations back to reality.
By Don Bisch

It was very telling last month when over a million public service workers in Britain went on strike over their pensions. At issue was the government’s plan to end the employees’ ability to retire at age 60 with full pension rights if their age and years of service add up to 85 years. Instead, they will now be required to work until age 65, or take a lesser pension. The dispute was another illustration of how our expectations about retirement have soared to unrealistic heights.

The notion that we should all be able to retire early—at 55 or 60—with a full employee pension, is an unsustainable one. As we live longer and enter the job market later, we’re spending almost as much time in retirement as we are working, all the while putting greater demands on our pension plans. Yet, employers have continued to dole out big-hearted pension benefit increases in recent years, and generous early retirement provisions have become commonplace.

But we’re paying for it now. The Office of the Superintendent of Financial Institutions(OSFI)had 84 pension plans on its watch list of underfunded plans at the end of 2005, up from 75 in September. And the regulator expects the situation to get worse. In fact, it isn’t ruling out authorizing the reduction of pension benefits promised to retirees, as Caroline Cakebread writes in our 2006 Top 100 Pension
Funds Report.

That’s not to say that the awarding of overgenerous pension benefits is the only cause of the underfunding problem. Historically low interest rates have been largely responsible for driving up pension costs and OSFI’s lengthening watch list. Contribution holidays have also played a role. And surplus and solvency rules have deterred plan sponsors from providing their plans a needed cushion. But employees’ over-inflated retirement expectations—and employers’ willingness to oblige them—certainly contributed to the current mess.

That reality is starting to hit home, both with plan members and industry stakeholders. A survey conducted earlier this spring shows that Canadians don’t expect to be able to retire as soon as they would like. The survey, conducted by Toronto-based Hart and Associates Management Consultants, found that, on average, Canadians would like to retire at 58 but realize they won’t be able to until 61.

And in late March, the head of the Caisse de dépôt et placement du Québec called for an increase in the retirement age to solve the pension funding crisis. Pointing out that increasing investment returns won’t be enough to cover future pension promises, Henri-Paul Rousseau said society must stop subsidizing early retirement and begin enticing employees to stay on the job longer.

What’s needed is more frank, open and honest communication between employers and their employees, or the unions who represent them, as Joel Kranc writes in a special feature on page 48. More realism on both sides is a must. When it comes to negotiations about pension benefits, there’s no sense in asking for—or promising—the moon if it’s only going to come crashing down to earth later on.

Don Bisch