I'm a lucky man. I have a defined benefit pension. It guarantees me a particular income at retirement. It used to be the standard type of pension. But, in the 1980's, businesses began to complain that they could no longer afford defined benefit pensions. Because of the vagaries of the market, they argued, retirement payments should fluctuate. And so the push began for defined contribution pensions. The monthly payment remained the same, but the payout at retirement was not guaranteed.
Government bought into the idea of defined contribution pensions because they relieved government of the responsibility of providing adequate pension payments to its employees. And, because business was also relieved of that responsibility, what no longer went to pension payments fattened corporate bottom lines.
Except, Linda McQuaig writes, the wealthy managed to maintain defined benefits, even as corporate profits rose:
The corporate keenness to foist riskier pensions on their workers is not driven by necessity. Corporate profits have risen significantly in recent years, even as companies have switched to the stingier pensions that transfer all risk to employees.
Even fabulously rich corporations are adopting the new pensions — not because they can’t afford to pay workers fixed pension benefits like they used to, but because they’d rather not be obliged to do so.
Take the Royal Bank — with staggering profits of $10.5 billion last year. In 2011, RBC adopted the new-style pensions for all new employees.
But CEO Gordon Nixon didn’t feel the need to convert his own pension to the riskier model.
He retired in 2014, at the age of 57, with an old-fashioned, risk-free pension guaranteeing him $1.68 million a year. And when he turns 65 — no matter what happens in the markets — he can count on receiving an even more comfortable $2 million a year (more than $5,000 a day) for the rest of his life.
The Trudeau government -- as part of Bill C-27 -- is now proposing to make defined contribution pensions the Canadian standard. It's policy Stephen Harper would cheer. The faces change -- but the policies don't.
Image: yellowpages.ca
12 comments:
Sweet Surrender the right has won this one. Its not rocket science. You buy guaranteed bonds to cover the pension. Thats too boring for wall street. No commissions there.
My experience with managing my our pension has been a disaster. Mutal funds nope, Nortel nope,
then you end up with all the money chasing the few, Bell, etc, and the in the USA the FANGS, it will all end in tears for everyone except the giant squid.
If Mr Singh wants to be PM, Singapore style housing and Pensions, its a slam dunk.
I once saw Kurt Vongut jr talk in a room of 40 people. His big message is that life is boring for most people and thats a blessing.
The CPP is well managed and efficient, Steve. I imagine that, in the future, it will be asked to pick up the slack -- or the pieces -- which have been left behind.
Sovereign funds are a solution. Canada, Norway and Singapore are stars in this area. But what if they submit to political control, or a series of black swan events take them out?
The biggest problem with capitalism today is too much money chasing too little opportunity. The old law of diminishing returns problem.
The CPP is a step stool. Its not a ladder to sleeping comfortably on even the lowest bunk.
If it's public money, Steve, there will be some kind of political oversight.
Speaking of political oversight. Patrick Brown, a 40 year old bach in the Jason Kenney vein who has just surrendered to pander bear. When all of are choices are merely due to personality what kind of democracy is that. It plunder plunder plunder, that is the fact of politics in Ontario today.
As McQuaig points out, Owen, when he was in opposition, Justin Trudeau vigorously opposition Harper's move to make it easier to move to Defined Contribution Plans. As prime minister, he is now championing it. Sounds like a betrayal to me.
Another promise bites the dust, Lorne.
Net Neutrality thats another social change that the MSM is telling us its good for us.
Some outlets are on Trump's side on this one, Steve. Others aren't. There is a variety of opinion.
I, like you, enjoy a defined benefit pension plan. From public service. This is due to much effort on behalf of workers by Unions! Trade-offs of wages, benefits were made over the years to maintain this pension. Pensions managers work very hard to ‘guarantee’ pensions for future retirees and are subject to rigorous actuarial assessments every few years. If there is a shortfall, it must! be made up by increasing contributions or other mechanisms to ensure solvency. Given today’s interest rates, our managers do a great job of maximizing returns.
So no great surprise that private interest want nothing to do with this type of pension. Plus, private sector interests underfund the pensions (or take $$$ from the fund for whatever) they promise to pay down the road, I.e. Sears. Bottom line, unions are reviled especially by the private sectors (public sector managers too) along with the pensions they provide. “These costs are making us uncompetitive.”
As to CPP and OAS, are the benefit payments not pegged to inflation? I know my deposits of both creep up every so often. Mac
Like you, Mac, I believe that our managers do a terrific job of growing the funds assets. When I taught, a significant portion of my pay cheque went to pension benefits. And those benefits were gained through strikes -- not pleasant experiences.
Business looks at pensions as a cost. But, if pensions are seen as a long term benefit, the cost is minimal.
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