Can you afford to retire?

All Work and No Play: Ontarios Retirement Crisis

ONTARIO ; No one ever said growing old in Ontario would be easy.

Take for instance, the increased health concerns, intensified wrinkles and the whole notion that there’s less time ahead of you than behind you.

But, at least we have our retirement years to look forward too, right? Retirement is the time in life when we put away the work boots and enjoy life ; taking trips to tropic locations, maybe touring Europe, or finally buying that luxury car we could never afford. And, of course, we can spend more time with family.

Its the life we’ve dreamed of, as promised by those popular Freedom 55 and Pacific Life insurance company commercials.

Well, Deaven Lewis didn’t get that memo. Even at the ripe old age of 66, the Malton father of two can only dream of retirement.

Is that a joke? he replies, when asked if he has any plans to give up his part-time job at the Metro grocery store in Brampton. If I retire now, Ill be living on beans, water and Kraft Dinner. At least this job allows me a little disposable income.

Lewis, a former financial services officer in the banking industry, is part of Ontarios looming pension crisis ; Baby Boomers and future generations who are in jeopardy of living in poverty as a result of an increased life expectancy and a lack of financial foresight.

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Lewis said he made a generous salary in commercial services. But, he never had a pension plan outside of CPP. He and his wife Deanna live in a semi-detached home in Erin Mills, which they are still paying a mortgage on. The couple have some retirement savings put away in the form of Registered Retirement Savings Plans (RRSPs).

But if I could go back, I would have definitely looked for a work pension plan, not much I can do about that now, she said.

According to the Ontario government, less than 35 per cent of workers in the province have a pension plan at work, while only 28 per cent of private sector workers belong to a pension plan.

Without a proper fix to Canada’s pension system, many middle-income earners risk retiring without a fiscal safety net.

The cost of not doing anything is the real measure here, said Ontario Finance Minister Charles Sousa. Imagine the tsunami of retirees that are going to come up the system, relying on CPP and not having anything much more to support them. Its going to be a huge cost to our social programs.

There is growing consensus in Canada that many middle-income workers without a workplace pension plan will face a lower standard of living in their retirement years.

However, what many financial and government experts cant agree on is how to solve this looming problem.

I really cant believe people expect to get by on just CPP, said Susan Eng, vice-president for Advocacy at the Canadian Association of Retired Persons (CARP), the country’s foremost advocacy group for seniors. They (CPP) were always meant to provide a base so that the private sector and private savings can fill in the gap. CPP just doesn’t provide enough to live on.

The public may have noticed that seldom does CARP use its full name anymore. Even their website doesn’t include the name: Canadian Association of Retired Persons.

That’s because the name isn’t really relevant anymore since half of our 300,000 members either cant (afford to) retire, or choose not to, Eng said.

Several ideas have been floated in recent months on how to address the shortfall in retirement savings.

One solution would see an increase in mandatory contributions to CPP with the goal of substantially raising CPP pension payments and doubling the current maximum yearly payout of $12,000.

Funding such an expansion of the CPP would require a hike to premiums paid by workers and employers.

The Canadian Labour Congress argues that even a modest increase to CPP could solve the pension crisis. A worker earning $47,200 or more per year, for example, could gradually double future CPP benefits with an initial premium increase of 9 cents an hour, or $3.57 a week.

That’s less than the cost of a newspaper subscription, the Labour Congress notes.

However, critics of this option, included among them the Canadian Federation of Independent Business, as well as Quebec and Alberta, and to some extent the federal government, have deemed mandatory increases a job killer.

Calling it an added tax on business, opponents say a mandatory pension plan could put the province at a competitive disadvantage.

The other pension fix being touted is a voluntary plan called Pooled Registered Pension Plans (PRPP).

Under PRPPs, the self-employed or employees of companies without pension plans, could make voluntary contributions to a professionally managed pooled fund.

The payout would depend on individual contribution and on investments returns the fund generates.

Critics of that option, however, counter that unlike CPP, PRPPs wont require employers to contribute anything.

On top of that, there are concerns a large number of Canadians could choose not to buy into the plan.

Some question whether people who now don’t currently contribute to an RRSP would want to contribute to a voluntary plan.

At a time when traditional company pensions are rapidly disappearing, and CPP benefits are capped annually at $12,000, there is agreed sentiment that doing nothing will leave millions of middle-class earners vulnerable in retirement years.

Several provincial finance ministers, including Sousa, have stepped forward to urge the federal government to move on reforms, including implementing modest increases to CPP contributions.

But calls to prop up the federal program have ultimately fallen on deaf ears.

Former Canadian finance minister Jim Flaherty said the nations economy isn’t strong enough to support the increased taxation needed to bolster the fund.

Policymakers are nervous about declining savings, increased household debt and an overheated housing market.

Flaherty had suggested taking more out of incomes of most of the working population isn’t a sound idea.

Right now the federal government is apprehensive about doing any of this, which is strange because it is in the benefit of Canadians in the long term, Sousa said.

Frustrated by federal foot-dragging, the province is drafting its own vision for an Ontario Pension Plan to supplement the CPP.

Earlier this year, Ontario Premier Kathleen Wynne appointed former prime minister Paul Martin as a special adviser on pensions. Martin will contribute to a technical panel comprised of pension experts.

Eng and other retirement savings experts suggest that individuals require 50-70 per cent of their pre-retirement income to maintain their standard of living in retirement. Most Ontarians cant save enough to meet that target.

Eng says, at best, with CPP and Old Age Security combined, one can earn about $18,000 annually post-retirement. Most Ontarians earn about $9,000 from CPP and Old Age Security, she said, with the average monthly payout less than $600.

Chris Buttigieg, senior manager, Wealth Planning Strategy for BMO Financial Group, says sole dependence on CPP after retirement is a dire mistake.

Given the amount that the CPP … pays out, Canadians should not rely on them as a primary source of income to fund their retirement, he said. Rather, they should consider the CPP to be a supplementary component of their overall retirement income solution and focus on creating their very own personal pension plan by contributing to an RRSP on a regular basis.

Others are counting on the sale of a home as a way to fund retirement. That’s exactly what Sung Joo Park, a self-employed caterer, did after she turned 60.

Park, 76, lives in a rented apartment in Mississauga. Her husband, Jong Joo Park, 82, died earlier this year. Neither one of them had a private pension plan.

Its hard, she said. Life was a lot easier 20 years ago.

Eng is calling on Ontario to make workplace pension plans mandatory.

It has to come into existence and somebody has to create it, she said.

Details on an Ontario plan still need to be ironed out.

The plan though would likely be run by an independent organization at arms-length from the provincial government. It would also use a defined contribution system that allows workers the choice to opt out.

Sousa is keen on the idea of a mandatory system with an opt-out clause, similar to what’s being done in Quebec and also in other countries.

The Liberals remain steadfast on introducing new reforms. But any new pension would have to be approved by the Ontario legislature where the Liberals hold minority status. If the opposition parties vote down the government, the province will face an election, and a pension scheme for Ontario could be put on hold.

© Mississauga