The Toronto stock market dropped 400 points the other day, and anyone who relies on their investments in the market to help fund their retirement got a little more anxious. Unfortunately, a lack of certainty is a part of our lives in every respect – our mental and physical health, decisions we make on career paths, purchasing a home, as well as any investments we make and we accept these risks because we all know, or should know, that there are no guarantees in life.
In the real world we minimize these risks to ourselves as best as we can and hope we are lucky but when we are not we don’t expect someone to “bail us out.” How could someone else be expected to protect us from the real world risks if we can’t do it ourselves?
Somehow, a segment of our population manages to escape this real world reality for their retirement financial needs. No matter what really happens to the money that has been set aside and invested by their employer to fund this retirement expense, the former employee is guaranteed a percentage of their best working salary, and it is often indexed to make sure it keeps up with inflation.
The private sector has been going away from offering this form of compensation for many years once it recognized that the potential liability was becoming more and more difficult to predict and could end up threatening the company’s solvency itself.
The scary thing about a defined pension plan in the public sector is that you and me as taxpayers, not some company, end up having to fund the inevitable pension shortfalls through more taxes. The liability, being spread over the entire taxpayer population, becomes manageable through sheer numbers and because it is “the silent majority” that is funding it, it continues to be offered to public sector employees.
You won’t see any politician voluntarily take on the debate for putting in sunset clauses to defined pension plans for the public sector as they are among the prime beneficiaries of the defined benefit pension plan.
The MP pension plan starts out with annual payments of around $30,000 once someone hits 55 years of age. However, the starting amount rises significantly once you get a few years under your belt and automatically increases each year for inflation. Right now, for every $1 MPs put into their pension plan, taxpayers contribute about $4 towards it.
That is why the Canadian Taxpayers Federation has recommended MPs overhaul the pension plan to make it a defined contribution plan.
As someone once said, the only things that are certain in life are death and taxes. Anyone who thinks they should be “guaranteed” more than that needs a reality check. That “check” should start with the public pressuring our politicians to move themselves towards a defined contribution pension plan.
M. S. Hocevar