Pension planning often gets put on the backburner
New FSRA reports put the spotlight on the perils of lost pensions, the growing economic pressures that put off retirement savings
A NEW REPORT FROM
THE province’s financial regulator is warning Ontarians about the risks of not keeping track of their pensions.
According to the Financial Services Regulatory Authority (FSRA) of Ontario there are some 200,000 pension holders who have a pension plan that they have lost track of. That represents about $3 billion in benefits.
The FSRA says this can happen to people who likely earned a small pension early in their career and changed jobs several times since then.
“Many times because people didn’t pay attention to pensions, they have lost track of the fact that they might actually have earned a pension from a job they had 20 years ago in their 20s. And they lost track of those pensions, they lost contact with the plan administrators, the planning ministers cannot find them,” said Andrew Fung, FSRA’s acting executive vice president of pensions.
For those who change jobs several times there could be a risk of losing several mission pensions, Fung said, adding that even small amounts can add up.
“No matter how big or how small it is, once you pay into it, you don’t want to be in a position where your hard-earned money, you didn’t get paid for it. You will pay attention if your paycheque is off by a dollar or two, then why would that be any different when it comes to a pension, because that should all be part of your total compensation?” he said.
Fung suggests looking for ways to consolidate pensions from multiple employers into one plan if possible.
“You should also look for those opportunities to kind of move those into the new vehicle that you have to the extent that the new vehicle or new pension plans allow you to do that,” he said
The report comes at a time when the number of private sector pensions have fallen. According to a Fraser Institute report, 86.6 per cent of government workers are covered by a registered pension plan compared to 22.9 per cent of private sector workers. Of those covered by a registered pension plan, 90.6 per cent of government workers enjoyed a defined-benefit pension compared to 39.9 per cent of private-sector workers.
A defined-benefit pension has a set annual amount mapped out in advance that a retiree is guaranteed to receive. A defined-contribution pension, which is more prevalent in the falling number of private sector plans that do exist, only sets a regular contribution amount, with no guarantees as to the payout when a worker retires.
Around 40 per cent of Canadian employees are currently contributing to a pension plan, which is a decrease of five or six per cent from 20 years ago, said Tammy Schirle, a Wilfrid Laurier University professor of economics.
There are multiple reasons for employers moving away from pensions, including a revision of their HR practices, Schirle said, noting missing pensions likely amount to an average of $10-20 per month.
“Pensions would have been thought of as a long-term commitment to employees who plan on sticking around for a very long time. Now, I can’t speak for employers on why it is that they would want to move away from that, but it is a large and expensive long term commitment. Perhaps they like the flexibility of just negotiating wages instead. That would probably be a big part of it,” said Schirle, adding that a unionized workforce makes pension negotiation easier.
“Where you have a group to negotiate with and you can do that with the group all at once, when they unionize. I think that’s why we tend to see unionized workplaces as the ones who also have pensions. It’s easier to negotiate that in a centralized way with your workplace, rather than trying to negotiate... on an individual basis with your employees.”
The FSRA last week released results of a recent poll that show that costs of living is also making it hard for Ontarians to save for retirement.
That poll showed that 81 per cent of people are more concerned about paying for basic necessities like groceries than saving for retirement, while 44 per cent said the high cost of living is hindering them from starting to save for retirement.
It also showed that 20 per cent of people think they will never be able to retire and only 17 per cent believe their quality of life will be better when they retire.
These results are not surprising, Fung said,
“Retirement or pension plans is a very complex topic. Most people think that retirement is a long time away and they didn’t pay attention to it. Most of the time, when people look for a job, they focus on the cash salary they’re getting, perhaps numbers of vacation days, perhaps how much the benefits pay and whatnot, but rarely do they look for whether the company provides any kind of retirement savings.”
However, balancing the cost of living against saving for retirement is not a new phenomenon as people even 30 years ago were faced with it, Schirle explained.
“Just thinking very practically, if you’re someone in your 20s you’re looking at, hopefully, getting a mortgage and managing that you’re dealing with childcare, you’re dealing with student loans. You’re worried about your savings and your finances, but you’re not yet thinking about putting money away for a pension. I think that’s just rational and logical,” she added.
“It’s not until you get past childcare and managing mortgages and these types of things that you start thinking about putting money away for retirement.”
While Fung said he doesn’t disagree with the idea of paying down debt or buying a home before saving for retirement, the FSRA is simply trying to create awareness of the importance of saving for when you are no longer working.
“That should always be part of your day-to-day financial decision and consideration and deliberation about it. So if you’ve made a conscious decision not to save because you want to save for a house first, that’s fine, but we are trying to create that awareness and [have it] be part of the DNA, be part of your day-to-day decision. Don’t let it fall on the backburner,” he said.