Pensions not only provide retirees with the financial support they need but also provide a benefit to the overall economy.
DB pensioners spend approximately $27 billion in Ontario, said Michael Block, a principal with Boston Consulting Group, at an event hosted by the Healthcare of Ontario Pension Plan (HOOPP) in Toronto on Monday.
He noted that, in certain towns and cities, the impact and importance of both DB and retirement plans are more pronounced.
“Generally, the smaller the town the more important DB plans are and retirement plans in general,” Block explained.
For example, 38% of the total earnings in Elliott Lake, Ont., are made up of a combination of pension, Canada Pension Plan, old age security, Guaranteed Income Supplement (GIS) and RRSP payments. In Cobourg and Orillia, the total earnings from pensions are 28% and 25%, respectively.
“And that has a very big impact on those economies as well if you think about how much those individuals are spending in those towns,” he added.
Pensions can also help with retirement confidence, according to a survey from The Gandalf Group.
Ontarians who have a DB plan think they’re going to fall about 5% short of their working income, while those who don’t have any pension at all think they’re going to fall short by about 20%.
“What I can also tell you from looking at this data is that people with defined benefit plans don’t know how good they have it, and people who don’t have any pension at all don’t know how bad they have it,” explained David Herle, the company’s principal partner.
There are approximately four million Ontarians without a workplace pension plan, and Jim Keohane, president and CEO of HOOPP, said the survey results suggest that “Ontarians who do not have a workplace pension plan do not have pension envy, but rather they have pension anxiety.”
A large majority (86%) of Ontarians believe there is a retirement crisis brewing in the country, and they say that both employers and the government are responsible.
Seventy-three percent say employers don’t offer good pension plans, 69% say it’s because the government doesn’t make it mandatory to offer good pension plans, and 56% say the government doesn’t make it mandatory to participate in workplace pension plans.
“Implicit in all of those answers are two facts: one of which is that people think that employers should be providing pensions to their employees to access,” Herle explained. “Second of all, people clearly see a role for government here.”
Pensions also help reduce the number of Canadians who have to rely on government assistance programs such as GIS. According to Boston Consulting Group, 10% to 15% of retirees with a DB plan collect GIS, while 45% to 50% of non-DB retirees collect GIS.
With millions lacking adequate pension coverage, Keohane said the costs will fall on government and ultimately cost taxpayers. He added that they’ll also have to make decisions that they’re not equipped to make.
“These individuals without coverage face the same investment challenges encountered by pension plans, challenges such as increased longevity, low interest rates and a climate of economic uncertainty.”
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