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“Those plans are beginning to perform very well, but groups that have a vested interest (against them) are continuing with the myth that they don’t work, and that there will be this huge deficit in terms of pension payouts. And it’s simply not true.” – Irene Mathyssen

 

By John Devine

Intergenerational fairness is a term often used in the context of pension reform, with opponents of measures to improve retirement security often asking whether younger Canadians should be on the hook for boomers who haven’t been able to accumulate sufficient retirement income.
The chatter is most often heard in relation to proposals to beef up Canada Pension Plan (CPP) benefits through increased employee and employer contributions. However, the complaint is flawed and misleading, says Irene Mathyssen, federal NDP member for London-Fanshawe, and critic for seniors.
If CPP benefits ever do get enhanced, the rewards won’t flow to boomers now at retirement’s door. Rather, says Mathyssen and others, because it will be decades for higher contributions to result in higher benefits, it will be younger Canadians who benefit.
There is intergenerational unfairness as work, but it’s not about pensions, Mathyssen told ARIA during a recent conversation. It’s about opportunity.
Opponents of pension reform, she continues, are “extremely good at creating this kind of dynamic – of pitting one generation against another. It was always that youth were being cheated and that the older generation was robbing the younger, and this was spun out constantly.”
Youth are being left a social debt in terms of unemployment, and lack of access to jobs with good benefits, such as pensions, says Mathyssen. As boomers retire, one might think career paths would open up for young people, but in large part that doesn’t seem to be the case, she continues. Employment is being found, but to a significant degree in the service sector and not in the fields for which young people have trained.
The same tactic of pitting one group against another can be seen in the phenomenon known as pension envy, says Mathyssen, in which people without pensions are encouraged to question why others have them. Unions and other advocates for public sector defined benefit pensions charge that this mindset detracts from the main pension issue: retirement insecurity.

“I get lots of mail from people asking why others get a decent pension, and they go scrapping and scraping. The answer is that everyone should have a decent pension. They made an investment into the Canadian economy, just like everyone else.”

The same politics of envy are being used to target the structure of public sector plans in Canada, comments Mathyssen, who adds that the success of these plans at delivering secure and adequate retirement income to members should be lauded and imitated, not criticized as a burden to taxpayers.
“Those plans are beginning to perform very well, but groups that have a vested interest (against them) are continuing with the myth that they don’t work, and that there will be this huge deficit in terms of pension payouts. And it’s simply not true.”
In fact, the vast majority of pension benefits are derived from returns on investments made by the plans – in some plans as much as 80 per cent of a benefit is earned by investments, with contributions filling in the remaining amount. (For more on this, click here). Canadian plans are also streaming back to fully funded status, driven by solid 2013 investment returns in the neighbourhood of 13 per cent. By the end of last year most plans were, on average, 99.9 per cent funded, according to a report by the consulting firm Mercer. (For more on that, click here).
The provision of adequate retirement income is also a strategy that pays dividends to employers in terms of recruiting and retention, financial experts say. (Click here to read a story on this angle). An expanded CPP might help employers retain valued talent, as employees might not be so anxious to seek better pension benefits elsewhere, says Mathyssen.
There is also the matter of adequate retirement income allowing seniors to remain consumers and therefore drivers of economic activity.
At a recent event in Toronto sponsored by the Healthcare of Ontario Pension Plan (HOOPP), along with settlor organizations on its board, information on the value of adequate retirement income, delivered by a defined benefit pension, was discussed. (Click here for that). The information, part of a Boston Consulting Group study on the economic impact of Canada’s Top 10 public sector pension plans, showed the value of DB income, particularly on the economy of smaller communities.
In Cobourg, for example, 15 per cent of local economic activity comes from retirees on DB pensions. Further, in Ontario recipients of DB income spend $27 billion annually on goods and services, and pay $3 billion in income taxes.
Mathyssen agrees with others who say this successful model of providing adequate retirement income should be tweaked if necessary, “but it doesn’t mean we should throw the baby out with the bathwater.”

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