Is your pension fund likely to come up short?
Just like everbody else, Canada’s biggest pension plans are struggling to cope after they took another beating over the past few months. And, when you look at future payouts, they continue to come up short, according to a recent Mercer study.
The Mercer Pension Health Index now stands at 60% down from 71% at the end of the second quarter -- not to say that's anything unusual. The index, showing the ratio of assets to liabilities, has been on a steady downward trend for several years.
And things don't seem to improving.
Pension costs are rising as retired teachers and their surviving spouses live longer. And most DB plans are subject to the same pressures.
To turn things around, OTPP will demand more contributions from members starting next year. The plan has also started trimming inflation-related increases for soon-to-be-retired teachers.
Why should you care? Well, even if you're not a teacher, this conditional indexing and higher contributions is a blueprint for what's likely to happen to your own pension plan - if you're lucky to have one to begin with.
Have you been hit with a request for more money? Have your prospective benefits been trimmed as well? Does any of this worry you?
By Gordon Powers, MSN Money
Posted by: Northern Ontario | Oct 13, 2021 10:07:55 AM
We must now realize that rate of returns of yesteryear is mostly long gone unless you take a chance in the emerging markets. When 12% was the target, we knew you could double your investments every 6 years. The target then became 8%. Even 6% is tough but a realistic goal. With expected inflation of 2-3% in the long run, I suggest you plan your portfolio with a 3-4% return after inflation. My goal has always been 7% which I thought it was conservative at the time. I am reducing my spending slightly and placing those savings back into my RRSP to offset the lower rate of return. I don't have a pension at work.
By the way, I wish our government would apply some of these underlying strategies . The only way they budget a surplus is if the economy churns at 3-4% growth. We have a large deficit to pay down. Why not budget your spending based on 0-2% growth and should the economy grow higher, that money could be allocated toward our deficit. I understand economics. I do realize we should always have a deficit. The government will never have a zero deficit because that will create very high inflation and too high standard of living. Can you imagine all the Hawks circling the wagon if we had all the bills paid and money left over? Lobbyists abound! People would want higher pensions, more benefits, better healthcare because we could afford it. But in reality, that would make us very uncompetitive. Too much to explain why
Posted by: John Gaul | Oct 14, 2021 11:20:21 AM
The article and the previous reply indicates to me that the problem lies in the economic system itself. It creates wealth but concentrates it at the top. It is not adequately regulated and for a system based on greed to be unregulated is insane. The result is an unfair and unstable system that collapses and causes worldwide hardship for the vast majority of people. So as a system that is supposed to provide benefits to people in general it is a massive failure.
This present economic system is a human invention and when an invention fails to deliver we go back to the drawing board and improve it. This system has to be rethought and redesigned and soon.
Posted by: SMS | Oct 14, 2021 11:30:30 AM
Who has a work pension other than people who work for the government? CPP is a joke - still set at 1960 levels and our government is asleep at the wheel or could not care less.
Canada needs to beef out CPP significantly and stop pushing RRSPs. The only people making money off of RRSPs are the financial institutions and funds making money out of fees. The returns from my RRSP over the past 20 years have barely kept up with inflation.
Posted by: Northern Ontario | Oct 14, 2021 4:37:41 PM
@SMS and John Gaul. You are both correct. You should know better there are no guarantees of returns in stocks even if the financial system tells you there should be. The only ones that come to mind might be the purchase of real estate but you have to factor in all of your expenses before making that calculation. The othesr might be GIC's or Bonds. The returns should be just above the inflation rate.
That's why good investors invest in stocks that pay very good dividends. At least you get something back should the stock fall. Supply and demand will always dictate the pricing structure. That's capitalism. If we go away from that, it must be government controled whcih we don't want.
Posted by: Worried | Oct 14, 2021 7:45:04 PM
Other than those for government workers most pension plans are going to come looking for more from future employees -- there's no other way!
Posted by: Mike | Oct 14, 2021 8:30:27 PM
@Worried, I don't work for the government, but a private company, and my pension will be more than what I need. I am worried more about the taxes that I will pay. I was dumb enough to put my money in RRSPs when I was younger (focussed on the tax refund rather than the longer term scenario). I will retire welll into the top tax bracket.
Posted by: Mac | Oct 15, 2021 8:32:22 PM
Many a public sector pension plans. Do not many perks follow them into retirement. Example if the plan holder passes does not the plan carry over to the survivor. Fo not medical premiums follow them into retirement. My guess as long as there is a tax payer governemnt pensions will be funded. Our medical system is on life support well maybe people should start paying there share instead of handouts.
Posted by: Mac | Oct 15, 2021 8:38:27 PM
Well an immigrant can draw a pension just after 10 years and some politicians want it dropped to 3. It was said that they would only draw if a $100.00 a month though times that by millions. Like immigrants of old had to work the best part of there live to draw a nickle. People should put in a min 20 plus years like many pension before you can draw anything out.
Posted by: All Governments are CRIMINAL | Oct 15, 2021 10:02:45 PM
Anybody in the government SHOULD NOT be able to making a living from that alone and they DO NOT deserve a pension after they leave office, They deserve to be put in JAIL for the reat of their lives, including all their family!!!
Want to play hardball?, well I am up to bat NOW!!!
Posted by: Mr. Jack | Oct 15, 2021 10:05:54 PM
Government officials deserve $3.00 UNDER minimum wage WITHOUT benefits!!!
Posted by: Sam | Oct 15, 2021 10:08:19 PM
Some municipal employees are bound to the omers plan and have no option to opt out of the plan. They should give employees the choice to manage their money the way they see fit. It has always been my argument with my omers plan that it's "legalised extortion". It was fine to think that when everthing is fine with the economy it made sense, conversely, I thought, what happens when the economy tanks as in 07-08 what control do we really have. I've noticed recently increasing efforts to generate more income within the plan through employee funds for members to buy pensionable years with lira funds from previous employment pension funds. That was my red flag. Yes, lucky to have a pension plan whether we want one or not!