"There was just this sea of grey hair, with two 20-year-olds at the back," he recalls. "We sat there, just trying to figure out where we fit in."
Now, as the group vice-president of financial services at Environics Canada, a research and marketing consultant firm, Macdonald is concerned not much has changed.
"It's only when Canadians are in their 30s and 40s do they get an inkling of what investments to make," he says. And that includes saving towards retirement.
"In a big city like Toronto, there's barely enough off the (Canadian Pension Plan) to go around, especially after property taxes. Many don't have pension coverage at all," says MacDonald.
Dale Powell, an institutional investment consultant for Morningstar Research Inc., agrees. "According to a 2006 StatsCan report, only 38 per cent have a retirement plan where they work. Most are on their own."
Powell specializes in investment research and analysis. This past summer, Morningstar partnered up with Desjardins Financial Security to create a group retirement savings product.
"Foresight is a turnkey solution for small to medium businesses," says Gil McGowan, Desjardins' regional vice-president of group retirement sales and development.
It offers 12 funds - including global equity and EAFs - six life cycle portfolios, and three retirement paths: growth, balanced or prudent. Most of it's age-based, explains McGowan.
The profiles are monitored by Morningstar, who produces quarterly reports to Desjardins at no cost to the employer or employee.
An employee benefit plan of this calibre shows a major shift in group retirement savings not just in Canada but globally, from defined benefit to defined contribution pension.
The first guarantees a certain income upon retirement, but it's up to the company to pay it. A defined contribution plan doesn't guarantee pension but puts a part of paycheques into a retirement account for the employee. The investment can go into a mutual or stock market fund, for example, and the returns, depending on market volatility, would go back to the account.
"The defined benefit plan is easy for calculating pension but something employers are not always willing to sustain," says SunLife Financial's Thomas Reid, the senior vice-president of group retirement services.
He notes 75 to 80 per cent of workers in the public sphere are covered under a defined benefit plan, but those in the private sector have dropped down to 20 to 25 per cent.
A defined contribution pension plan shouldn't be considered second rate, argues Mark Ross, national sales manager at TD Investment Services
The TD Future Builder is a group retirement savings product that also offers life cycle funds monitored by financial planners.
"There's an equal benefit here," he points out. "Say a business owner observes a turnover rate of two years. We'll design it so that after two years, if the employee is still around, they will match their contribution dollars."
The `disciplined savings strategy' is another plus.
"The contribution comes out of your pay before you even see it, and in that way you pay yourself first," says Ross. With such competition behind group retirement savings, life cycle - or target date funds - are fast becoming the market driving force, says Reid.
In October, SunLife launched SunAdvantage, a "plug and play" plan for smaller, entrepreneurial businesses. Its Milestone Fund function operates under target funds, which makes automatic adjustments as the fund's maturity date approaches.
"We haven't seen a slowdown in companies setting up GSPs even during the market downturn," says David Richardson, vice-president of RBC Asset Management. He says in almost every case, the employer chooses to match the employee's contribution, dollar for dollar.
"It's important to have loyal employees in good or bad economies."
Toronto Star, Thurs Nov 12 2009
Byline: Olivia Li
Only about one-third of workers in Alberta belong to workplace pension plans. Many of those who do may still not be socking away enough money for their retirement years.
People are living longer and costs are rising. Financial advisers have long suggested that retirees will require 60 to 70 per cent of preretirement income to live on after they leave their jobs, but the latest research suggests that range may still be too low. Many Canadians are likely only going to be able to muster 50 per cent of the pre-retirement income and in Alberta it is expected to be even less than that.
The governments of Alberta and British Columbia have seen the shocking predictions and are wisely making efforts to do something about it. In October 2007, they created a joint expert panel to look at the problem and come up with a program to bolster the Canada Pension Plan and Old Age Security income many of their residents will have to rely on for their existence when they retire. The Alberta Federation of Labour says those two federal programs will only provide about 14 per cent of the pre-retirement income of workers, leaving a huge gap between what they have and what they will need.
The obvious solution would be to dramatically bolster the federal programs-- a move called for by the federal NDP just two weeks ago.
NDP Leader Jack Layton says Canada is in a pension crisis and CPP benefits need to be boosted from about $900 monthly to $1,800. That, he says, would require a payroll deduction of about another 2.5 per cent. CPP was initially designed to provide replacement income of only 25 per cent of the average industrial wage, or about $11,000 annually.
Even the head of the Canada Pension Plan Investment Board has called for creation of a supplementary CPP benefit to top up the existing plan, noting that 11 million Canadians have no access to a pension.
But Ottawa has seen no urgency.
Prime Minister Stephen Harper told Parliament the government is still consulting with Canadians and the provinces on pension reform. Alberta MP Ted Menzies, the federal finance minister's point man on pensions, has promised to submit proposed recommendations for changes for the country's finance minister's to consider at their next meeting in December.
Alberta and British Columbia are holding Harper's feet to the fire by saying they will press on with their own ABC plan if the federal government fails to deliver meaningful proposals for reform.
Alberta Finance Minister Iris Evans told Canwest News Service this week that there are "frightening" gaps in the retirement plans of Canadians and Alberta and B.C. will push on alone if they have to. "It's not going to slow our horses out here," she said, in true Alberta fashion.
Albertans and all Canadians need action on this file now, but there is value in a national plan that is portable. How well will we be served if every region of the country has its own plan? Already we're hearing that the Wildrose Alliance wants to pull the province out of CPP in favour of an Alberta-only plan.
Critics have also raised some serious concerns about the ABC plan, which is proposed to be voluntary. That means employers, who currently don't have their own plans, won't have to participate in this one either or contribute to their employee's pensions. There are also concerns that the ABC plan is to be a defined contribution plan rather than a defined benefit plan that guarantees retirees a specific monthly amount when they retire. Under a defined contribution plan, benefits could be reduced if the economy sagged.
While the ABC proposal is better than what Albertans have today-- since some of them have nothing-- let's hope Ottawa answers the bell with something that's more than a Band-Aid. Canadians need pension reform now if they are to be spared a retirement into poverty.
Edmonton Journal, Fri Nov 6 2009
October 2009: Attacks on health care; EI failing working people in Alberta; Pension reform; Send Old Dutch a message
Wrong Way! Stelmach vows to proceed with attacks on health care ...
- In his recent televised address to the province, Premier Ed Stelmach vowed to press on with plans for major changes in health care - but he declined to explain what those changes would involve. The AFL believes the government's "reform agenda" essentially boils down to privatization, lay-offs for health care workers and more downloading of costs onto patients and their families. That's why we're supporting the Friends of Medicare's "Wrong Way" campaign aimed at stopping yet another Conservative push to privatize our public health care system. Learn how you can help keep Medicare public!
EI fails working people - especially in Alberta
- As the global recession drags on, more and more Canadians have joined the ranks of the unemployed. Unfortunately, the federal government's Employment Insurance (EI) program is failing to provide a safety net for many of those who have lost their jobs. In fact, a study released last month by the AFL shows that less than 40 per cent of unemployed workers in Alberta are eligible to receive EI benefits. Albertans have to work longer to receive fewer benefits than any other workers in the country - and the majority of Alberta's unemployed receive no EI benefits at all. For the publication ...
Alberta leading in the wrong direction on pension reform
- The recession has proven that Canada desperately needs pension reform, but a proposal for a government-sponsored supplemental pension plan being floated by the Alberta and B.C. governments may actually make a bad situation worse. That was the conclusion of an actuarial analysis commissioned by the AFL and conducted by the Vancouver-based pension firm PBI. After crunching the numbers, the consultants found that the so-called ABC plan would, in most cases, generate only a paltry amount of income for pensioners. AFL president Gil McGowan warned that, in addition to being inadequate, the ABC plan would likely distract attention from discussion on more substantial proposals for reform. Read the full text of the analysis ...
Privatization by stealth
- How would you like it if someone sold your property out from under you without even asking your opinion? That's exactly what happened when Edmonton City Council voted behind closed doors to sell large chunks of the power generation assets owned by the citizens of Edmonton through the City's utility company, Epcor. Now a majority on City Council has voted to bar the public from all future privatization decisions related to Epcor. Frustrated Edmontonians are encouraged to get involved with the new citizen's group, Our Power, which formed over the summer to demand that the public - as owners - be given the final say on all privatization debates. Our Power's latest effort is to get enough signatures on a petition to force a plebiscite on privatization during the next municipal election. Find out how you can get involved! For more information ...
Send Old Dutch a message!
Workers at the Old Dutch potato chip plant in Calgary have now been locked out by their employer for more than 200 days - and winter is fast approaching.
Please remind all your locals, members, friends and family to stop buying Old Dutch products until the company agrees to the very basic contract provisions that the workers are asking for.
Also, please head down to the picket line and let the workers know that the rest of the labour movement is still behind them! The picket line is located at 3103 - 54 Avenue SE, Calgary.
Parkland Institute's 13th Annual Fall Conference
Crisis and Opportunity: It's Time for a Progressive Economy
November 20 - 21, 2009
University of Alberta, Edmonton
Last year Alberta was in a boom and then the world economy collapsed.
What do we do now?
Information is shock resistance.
This conference is about providing the information and the ideas that can be used to promote a better future for the common good.
Did you know ...
Over the past ten months, unemployment in Alberta has more than doubled. No other province has seen a faster spike in joblessness.
October 2008 - 78,300
August 2009 - 158,000
Unemployment by region (Sept 2009 vs. Sept 2008):
Edmonton Region: 7.7% vs. 3.7%
Calgary Region: 7% vs. 3.8%
Red Deer Region: 8% vs. 4.6%
Lethbridge-Medicine Hat: 7% vs. 3%
Grande Prairie Region: 9.1% vs. 5.1%
In some ways, it's appropriate that the Labour Day holiday marks the last long weekend of summer. Let's face it, while some of us are lucky enough to have jobs that we find fulfilling, a bit of time off to spend with friends and family is always welcome. We work to live, not vice versa.
That's why Canadians have come to expect that, when their working days are over, they can look forward to retirement-- a time to relax and enjoy the leisure they've earned through years of labour.
Unfortunately, these expectations are beginning to seem unrealistic for many. Canada's pension and retirement income system is in a shambles, and with a growing number of baby boomers reaching retirement age, the stage is set for a crisis of poverty among senior citizens.
The figures speak for themselves. According to investment industry analysts, Canadians are currently on track to replace only 50 per cent of their pre-retirement income once they retire. The situation in Alberta is even worse, with retirement savings that will provide only about 45 per cent of pre-retirement income.
Since pension experts agree that to retire without a drop in living standards requires about 70 per cent of pre-retirement earnings, it's clear that Canadians, and Albertans in particular, are going to face serious problems when they reach the end of their working lives.
Why this shortfall? Canada's retirement income system rests on what have become known as the Three Pillars: public pensions (the Canada Pension Plan and Old Age Security), workplace pensions offered by employers, and individual savings.
Unfortunately, the second pillar--workplace pensions --has been in decline for the last two decades. During this period a growing number of companies have decided that they no longer want to bear the cost of providing a retirement income for their employees.
According to government figures, in 2008 only 40 per cent of Canadian workers belonged to an employer-sponsored pension plan, and in Alberta the figure is just 33 per cent. This decrease in pension coverage is bad news, because a good workplace pension is an efficient and cost-effective way of saving for retirement.
The alternative to an employment-based pension is, of course, individual savings through a tax-exempt Registered Retirement Savings Plan. Unfortunately, the evidence suggests that RRSPs just aren't getting the job done for most Canadians.
There are several reasons for this. Faced with the stagnating real income and the reality of financial ups and downs, few working people are able to make regular contributions at a high enough level to generate the savings needed to support retirement.
Even for those able to keep up their contributions, it's hard to invest these savings in a way that generates a reasonable rate of return, especially when stock markets are as volatile as in recent years. Furthermore, most RRSP funds are invested in mutual funds, and the mutual fund industry in Canada charges some of the highest administration fees in the industrialized world. These fees eat away at investment returns, even when economic times are good.
For these and other reasons, RRSPs just aren't fulfilling their mission. The proof is in the pudding: a Statistics Canada study published last year shows that, for families whose main income earner is in the crucial 54-to-65 age group (in other words, people on the verge of retirement), only 65 per cent have RRSP savings, and the median value of these RRSPs is just $55,000. That level of savings isn't going to provide a dignified retirement for anyone.
Government leaders and pension advocates have admitted these problems and various remedies have been proposed. The governments of Alberta and B. C. have begun to explore a supplemental pension plan (to supplement the existing Canada Pension Plan and Old Age Security) tentatively called the ABC (Alberta-B. C.) pension plan. While this proposal represents an honest attempt to address the looming crisis in retirement incomes, the design of the proposed ABC Pension is fundamentally flawed, and will not be able to do solve the current problem.
Put simply: the ABC Pension suffers from some of the same problems that have hampered individual RRSPs. Participation will not be mandatory, even though this is the only way to guarantee that most workers will actually get a pension. The plan's proposed design also exposes individual participants to the risk of falling financial markets and low interest rates (lower interest rates make a pension more expensive). Finally, the suggested contribution rates (essentially, the rate at which participants save for retirement) are much too low to provide sufficient pension income.
The good news is that there is a better way. There is already a pension plan in Canada that provides almost universal coverage and a guaranteed benefit level --the Canada Pension Plan. The CPP is an extremely efficient plan, with very low investment and administration costs. The problem is that the level of benefit is far too low to provide for a comfortable retirement. So, instead of inventing a new, inferior supplemental plan, all that really needs to be done is significantly expand the CPP.
Of course, raising the level of CPP benefits will cost money but, unlike the costs associated with the ABC Pension plan, this will be money well spent. Since the CPP already has the tools needed to collect contributions and pay out benefits, the increase in costs will go almost entirely to higher benefits, rather than to administration. Unlike an Alberta-B. C. plan, the CPP is also portable from coast, to coast to coast. The CPP alone is capable of providing seamless coverage to working people all across Canada, and doing so at a reasonable cost.
This Labour Day, Canadians should throw their support behind the growing movement for fundamental pension reform based on expansion of the CPP. With reform, the dream of retiring with dignity can be realized by all Canadians, instead of only a privileged few.
Calgary Herald, Page A11, Mon Sept 7 2009
Byline: Gil McGowan
All proposals identified the need to provide Canadians broader access to large well-managed pension funds, especially for those without workplace-sponsored pensions. Between three and five million Canadians are not in employer pensions --or not saving enough.
The private sector is increasingly reluctant to give workers the gold-plated defined-benefit (DB) pension plans that are common in the public sector. But the 2008 crash highlighted the stock market risk defined-contribution (DC) plans place on the shoulders of employees.
The same applies to self-managed RRSPs for those with no pensions.
Robert Brown, actuarial science professor at the University of Waterloo, says employers are increasingly reluctant to give workers the guaranteed payouts of traditional DB plans. But he says workers need more than just the hoped for payouts they are getting from DC plans and RRSPs.
The future may be a middle ground: A hybrid DB-DC plan that gives workers an expectation, but not a promise, of future investment returns. One prototype may be the "ABC" plan, a DC target-benefit plan proposed jointly by Alberta and British Columbia.
With the target plan, contributions paid by the employer are based on projected, or targeted, retirement benefits. But the benefits provided to participants at retirement are based on the performance of the investments, so are not guaranteed. In a bad market, the pension that workers have already earned may go down or it may rebound after a good market.
Dean Connor, president of Sun Life Financial Canada, says smaller companies and the self-employed should band together to create a "commingled" pension plan that lowers costs through economies of scale.
However, the ABC proposal is getting flak from union members who prefer the guarantees of traditional DB plans.
The Alberta Federation of Labour commissioned a study by PBI Actuarial Consultants Ltd. of Vancouver, to review the ABC plan. PBI president Tony Williams says DB plans actually offer more efficient models than DC plans and better risk-sharing between employers and employees.
PBI disagrees with the concept of a DC platform that shifts all investment risk to employees. It's not realistic to believe employees who don't currently have pension plans would contribute 6% or 9% of pay to a plan like ABC's.
PBI produced various scenarios for so-called replacement ratios -- the ratio of income in retirement to employment income enjoyed just prior to retirement.
Financial planners suggest a 70% replacement ratio is a good rule of thumb, although actuary Malcolm Hamilton at Mercer has argued as little as 50% may be adequate. At the other extreme, Fidelity Investments Canada found 80% or more might be needed for the affluent.
PBI gave the Alberta Federation of Labour 30 scenarios, including, at the extreme end, a low-end replacement ratio of 14%. Public-sector unions in Alberta leapt at the opportunity and trumpeted the low 14% ratio.
It's a tactic that infuriates Robert Brown. He understands the union's reluctance to embrace ABC: they have "nice public-sector DB plans and don't want to lose them," he says.
The 14% is an "outlier" number using the example of a worker aged 35, earning $100,000 and making the absolute minimum contribution to the ABC plan.
"It upsets me that policy would be driven by one number: 14%, for a person making stupid decisions along the way, making no other contributions to retirement. The story doesn't hold water. The union wants to talk the public into believing this is a lousy plan," says Brown.
The ABC plan offers some solid solutions, Brown says, and is "worthy of intelligent debate."
Financial Post, Sat Aug 15 2009
Byline: Jonathan Chevreau
Newly formed Task Force on Pension Reform must look outside Alberta: Labour rejects Alberta-B.C. Penson Plan Model
"The Task Force has come to the wrong province to launch their investigation if they're looking for the right answers on pension reform," says Nancy Furlong, Secretary Treasurer of the Alberta Federation of Labour. "The Alberta and B.C. governments have been pointing us in the wrong direction. Their proposed ABC Pension Plan is a meager supplemental program that employers can simply opt out of and which shifts all the risks onto the shoulders of individual Canadians. We've seen the terrible impact that fluctuation on the global equity markets can have on such plans and on workers and their families."
The Alberta Federation of Labour's actuarial analysis of the ABC Pension Plan has revealed striking flaws: the proposed plan, even when added to existing benefits provided by CPP and OAS, would generate as little as 14 per cent of pre-retirement income for individuals enrolled in the plan, which falls far short of the recommended threshold of 70 per cent. Furthermore, employers are allowed to opt out and even those who join the plan wouldn't be required to match the contributions made by individual employees. Finally, the ABC Plan would be a defined contribution plan, rather than a more secure defined benefit plan. Defined contribution plans are more risky because the value of the benefits can be significantly lower than expected, particularly in economic downturns and periods of increased inflation.
"Instead of simply sticking on a band-aid, like the ABC voluntary supplemental plan which lures Canadians into a false sense of security, the federal-provincial task force should commit to a significant expansion of the Canadian Pension Plan. The CPP is easy to reform and improve and is available to all Canadians," says Furlong.
If the task force does consider plans to supplement the CPP, it should insist that participation is mandatory. Otherwise, employers will continue to simply opt out or cut back contributions.
Improvements must also be made to protect private sector pensions. The Alberta Federation of Labour calls on the task force to examine legislation that will protect these plans and ensure that workers get what they bargained for. In particular, legislation should include insurance that protects Canadians from the fallout if their pension plans go bankrupt.
The Alberta Federation of Labour believes that the task force should make the pension reform debate public and open to all stakeholders, starting the process with a national summit on pension reform.
"It is high time that we take a good look at how to best provide retirement income to Canadians. And what we need is a cohesive system, like significant improvements to CPP that makes a guarantee to Canadians that they won't face the prospect of living in poverty in their old age," says Furlong. "The federal-provincial taskforce shouldn't be fooled by the ABC plan's promises."
For more information call:
Nancy Furlong, AFL Secretary Treasurer @ 780-483-3021 (office); 780-720-8945 (cell)
Federation president Gil McGowan says the supplementary plan proposed by the two provinces is flawed because it's not mandatory and -- even when added to Canadian Pension Plan and Old Age Security benefits -- still wouldn't provide workers sufficient money for retirement.
Employers that don't have pension plans now aren't likely to sign up if they still don't have to, he said.
The labour federation said only 40% of Canadians have workplace pension plans. The percentage is much lower in Alberta, where only 18% of residents working in the private sector have pension plans.
The situation has prompted the Alberta and B.C. governments to work on a supplementary pension plan for workers with no company pensions.
Finance ministers from B.C., Alberta, Ontario, Nova Scotia and Manitoba have scheduled a meeting in July to discuss the possibility of a national supplementary pension plan.
Canwest News Service, Fri Jun 19 2009
Union leaders urge western premiers to reject Alberta-B.C. pension proposal as solution to unfolding crisis in retirement income
DAWSON CITY, YK – Canadians desperately need pension reform, but a new proposal for a government-sponsored supplemental pension plan being floated by the Alberta and B.C. governments may actually make a bad situation worse.
That was the message delivered today by the president of the Alberta Federation of Labour (AFL) and other regional labour leaders as they followed the western premiers and territorial leaders to their annual policy summit, being held this year in Dawson City, Yukon.
"As a result of the global recession and the collapse in equity markets, it has become painfully obvious that our existing patchwork system is not up to the task of providing adequate retirement income for most Canadians," says Gil McGowan.
"But the answer isn't to introduce a meager supplemental program that employers can simply opt out of and which shifts all the risks onto the shoulders of individual Canadians. What we need is a cohesive system that makes a guarantee to Canadians that they won't face the prospect of living in poverty in their old age."
To back up the AFL's argument that the Alberta-B.C. proposal is not the right way to address the unfolding crisis in retirement income, McGowan unveiled an analysis prepared for the Federation by PBI Actuarial, a Vancouver actuarial firm specializing in pension management (click here for analysis and accompanying charts).
The analysis shows that – even when added to existing benefits provided by CPP and OAS – the proposed ABC plan would generate as little as 14 per cent of pre-retirement income for individuals enrolled in the plan – far short of the recommended threshold of 70 per cent.
The ABC plan also gets low marks because it allows employers to opt out and it wouldn't require all employers to match contributions made by individual employees.
Perhaps the biggest drawback, PBI argues, is that the ABC plan would be a defined contribution plan as opposed to a defined benefit plan – meaning that people covered by the plan would run the risk of having their retirement nest egg substantially reduced if they have the misfortune of retiring during an economic downturn (like the one we are currently struggling through).
"The bottom line is that is the ABC plan is at best an awkward band-aid solution," says McGowan. "In fact, we're concerned that the Alberta-B.C. proposal will distract from real reform and provide false hope to the growing number of Canadians who face the very real prospect of living in poverty after they retire."
So instead of getting behind an ill-conceived ABC plan, McGowan and his counterparts from other labour federations called on the western premiers and territorial leaders to use their clout to call for a national pension summit at which all stakeholders could debate fundamental pension reforms – like the dramatic expansion of the existing Canada Pension Plan (CPP). A growing chorus from labour, business and academia now see the CPP – which provides a defined benefit – as the best and easiest vehicle for reform.
McGowan and other labour federation leaders also said the western premiers and territorial leaders should actively and aggressively discourage Prime Minister Stephen Harper and federal Official Opposition Leader Michael Ignatieff from reaching a "watered-down deal" on employment insurance.
"Workers in western Canada are being unfairly discriminated against by arbitrary rules that make it much harder for them to qualify for the EI benefits they've paid for. But it's not clear that the new pact between the federal Conservatives and Liberals will do anything to address this fundamental inequity," says McGowan.
"If the western premiers are really serious about helping their citizens weather this recession they need to make sure that Harper and Ignatieff aren't allowed to wiggle off the hook by stalling and offering half-measures. An amazing consensus has emerged in Canada calling for one national standard for eligibility and increased benefits for workers who lose their jobs. The western premiers should make it clear they simply won't settle for half a loaf."
NOTE: McGowan and the leaders of other western provincial and territorial labour federations are in Dawson City with the premiers. They will hold a media availability this morning at 9:30 a.m. at the Yukon Order of Pioneers (YOOP) Hall, located at the corner of King Street and Second Avenue.
For more information call:
Gil McGowan, AFL president @ (780) 218-9888 (cell)
For full copies of the PBI analysis of the proposed ABC pension plan, visit the Alberta Federation of Labour website at www.afl.org .