Clark Wealth Management Group - ScotiaMcLeod Fredericton

Pension programs are under immense pressure all around the world. Not only is there an extraordinarily large number of soon-to-be pensioners coming along but investment performance inside pension plans has been “lumpy” to say the least. Add to that the smaller workforce coming behind to fund things and you see why governments and pension administrators are looking hard at ways to bolster their plans.

The solutions to the challenges faced by pension plans everywhere are a matter of simple mathematics. It’s putting more in sooner and taking less out of the plans later. As simple as the math is, tinkering with a workforce or population’s pension plan is a politically charged issue. This was seen earlier this month in France when the Country was effectively shut down by some two million citizens protesting a proposal to increase the minimum legal pension age from 60 to 62.

In some European Countries some tough decisions and progressive changes have already been made. Some have already moved the age when citizens can receive pension benefits from 65 to 67 years. Others have connected this eligibility age to its population’s life expectancy – a smart decision to be sure.

Although there hasn’t been much noise made about it here at home, there are currently some proposals being considered in relation to our own Canada Pension Plan (CPP).
To my knowledge no member of the Canadian government has officially suggested that we need to increase the age at which someone is eligible to receive the CPP or the OAS. Even so, that may well be one of the mathematical realities we’ll all have to face in the near future.

So far the proposed changes to CPP appear to be small. Here they are in a nutshell:
Allow people to start receiving CPP at age 60 without them having to stop working for 2 months as is currently required. This is called removing the work cessation test and it’s proposed to happen in 2012.
By 2014 allow people to drop-out eight (currently seven) of their low/no income years. This should result in slight increases in benefits.
Currently those between the age of 60 and 65 who receive CPP and work do not contribute to CPP. The proposal is to make their continuing contributions to the fund mandatory, in return for slightly increased benefits eligibility.
For each month before age 65 a Canadian receives CPP their benefit is reduced 0.5% - a 30% reduction if started at age 60. The proposal is to increase the penalty to 0.6% per month or 36% if started at age 60. Similarly, if someone delays taking their CPP past their age 65 the benefit bonus they receive increases to 0.7% per month to age 70 – a 42% bonus on top of the basic benefit.

We’ll be hearing lots more about the solvency, sustainability, funding and benefit levels of pension plans in the coming years. There will likely need to be significant changes made for pension plans to meet the needs of those who will rely on them.

Meanwhile, those of us from the back end of the baby boom should start increasing the amount we put into a savings plan of our own. We may also want to settle in for a longer career than those fortunate few who were able to retire early a decade or so in front us. Eventually the indelible mark left over from London Life’s old marketing campaign -- “Freedom 55” -- will go the way of the eight track tape.

Keir Clark, is a senior wealth advisor, with Clark Wealth Management Group and branch manager at ScotiaMcLeod in Fredericton, NB. He can be reached online at www.keirclark.ca or by telephone at 506-450-6465.

Information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, expressed or implied, is made as to the accuracy or completeness.