Thursday, February 23, 2012


 “Most defined-benefit pension plans in
 Canada are underfunded currently
 because the investment markets have
 done so poorly over the recent past,” 

Paul Duxbury


Concerns about the sustainability of retirement plans has become a national obsession that might soon eclipse concerns about healthcare delivery. We are in a period where debt, deficit and demographics are changing expectations and creating a new normal.

The Federal government adjustments to the CPP and plans to move back the qualifying age for the old age pension in the public sector has grabbed headlines. However more and more private sector companies are struggling to meet their own pension obligations. In recent years, Canadian companies and their employees have seen their pension assets plummet. According to Statistics Canada, two-thirds of pension plans in Canada are now in the red.

A story in yesterday's Globe & Mail caught my attention.  General Motors of Canada Ltd. sis facing facing a $2.2 billion  shortfall in its unionized pension plan which covers more than 30,000 retirees. This, despite a $3.2-billion contribution taxpayers made to the fund when the auto maker’s parent company went into bankruptcy protection in 2009!

Other large  underfunded pension plans in Canada are at Air Canada, Nortel, Alcan, CIBC and Bombardier.

Poor returns on pension fund investments has been augmented by a demographic challenge, large numbers of retirees and dwindling numbers of active worker! Add to that, a lot of people are in the red - they have little to no savings and are in debt. Sound familiar? That demographic challenge is going to continue to haunt western economies as the average age of the population grows higher.

The potential of employer-sponsored direct benefit pension plans not being able to meet their pension obligations is fast becoming a tragic reality in the wake of the recent mini-depression. Baby boomers who were taught to take a job, work hard and retire with a gold plated pension after 25-30 years, are getting quite an awakening.

Baby boomers have begun  to retire en masse at a time when combined pension and health-care costs are sky rocketing. Some experts predict that they could exceed 25% of our total gross domestic product. The height of the Boomer retirement is predicted to be 2025. We are just entering the storm. As we’ve seen in France, Greece and other countries, serious problems arise when countries have become so indebted that they are unable to raise debt to bail out retirees who have, by and large, under-saved!

The price of piling on more debt both to finance current consumption and future retirement seems to be that  baby boomers have left massive debt for their children and grand-children.

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