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Need to know: Federal pension overhaul

Old-age security eligibility raises to 67, throwing a wrench in the retirement plants of many Canadians.


April 2, 2012
by The Canadian Press

TORONTO: Middle-class families must either save more for their retirement, or risk suffering a big shock in their golden years.

The Ontario government plans to repeat that warning over and over again during the coming months as Ottawa raises the eligible age for old age security to 67, postponing existing benefits for two years.

Few Canadians are saving enough money for their retirement years, which will put more pressure on their families and provincial health and welfare budgets once they reach old age, Ontario Finance Minister Dwight Duncan said.

“I don’t think we are taking this seriously enough as a society,” he said. “I don’t just mean the federal government.”

The federal Conservatives announced in last week’s budget that they will start making the adjustments in 2023 and phase them in gradually over six years. That means anyone younger than age 54—including Ontario’s 53-year-old finance minister—will need to seriously reconsider how they’re planning for their retirement.

It will affect the guaranteed income supplement, veterans’ benefits, aboriginal benefits, survivors’ allowances and especially the way many companies have set up their employees’ pension plans.

Many people don’t realize how expensive their post-retirement years may be, or how much of a toll it will take on their own finances to provide care for a loved one. Duncan’s parents paid $4,000 a month to be in a public continuing care facility in the last years of their lives, he said.

“Most Canadians who haven’t gone through this themselves or with family have no idea of the cost of this,” Duncan said. “This society is getting older. This society is going to live longer. Demands on health care, social welfare are going to become much greater. And this signals a very significant change in post-retirement income.”

The federal Tories have pushed the idea of pooled retirement pension plans as voluntary savings vehicles for workers who don’t have access to conventional pension plans through their jobs, such as the self-employed. PRPPs would essentially be
defined-contribution plans managed by large financial institutions, but left-leaning critics complain they’re little more than “glorified RRSPs.”

PRPPs are a “weak-kneed” response to the retirement income problem, Duncan said. But Ontario has agreed to support the implementation of PRPPs, so long as there’s a “meaningful discussion” about enhancements to the Canada Pension Plan.

“The cost of administering Canada Pension Plan is three-quarters of one per cent, versus 2.5 to 3.5 per cent on privately administered plans,” he said. “So I think we are going to be turning up this discussion here in Ontario. We think it’s important.”

Premier Dalton McGuinty has said he’d like to work with other provinces as well as Ottawa to come up with a solution.

“(CPP is) a big plan, it’s a strong plan, it’s a very cost-effective plan. It’s run very efficiently,” McGuinty said.

Enhancing CPP is the way to go, said Susan Eng of CARP, a non-profit advocacy organization for people over the age of 50. But the province also needs well-paying jobs if younger workers are to save for their retirement.

“If you improve on people’s ability to save—and this applies to lower-income people even more than the average worker—then they are less likely to have to depend on OAS,” she said.

Ontario’s governing Liberals are also looking to make changes to pension plans in the broader public sector, some of which are facing “serious sustainability challenges,” according to the 2012 provincial budget tabled last Tuesday.

That’s a problem for the provincial government, whose pension obligations are projected to increase to levels that would “crowd out” spending for other programs, it said. Pension expenses are expected to rise from $2.4 billion this year to $3.4 billion in 2014-15.

The government is looking at having public sector workers pay more into their pensions, pool their plans or reduce benefits if there’s a deficit. But it plans to hold consultations before introducing legislation.

©The Canadian Press