Read this blog and comments on moneyville.
Many impecunious boomers are working longer and these so-called “hidden pensioners” may block career opportunities for younger generations, says a survey by actuarial consulting firm Towers Watson.
The survey found that over the last three years roughly one-third of Canadian workers decided to retire later than they had first planned. Those with only a defined contribution pension or group registered retirement savings plans (35 per cent) plan to delay retirement longer than those with defined benefit pensions (29 per cent).
Of those planning to delay retirement, almost 40 per cent who participate only in defined contribution plans or Group RRSPs contemplate at least another five years on the job.
Towers Watson senior actuary Ian Markham says the result if boomers stay around longer is that they will block the next group who would otherwise have been able to move into these more senior positions.
“This has to affect productivity and moral,” he says.
The federal government has touted the new pooled registered pension plans as a solution for Canadians with low retirement savings. A PRPP is a group, defined contribution retirement savings arrangement, administered by a third party financial institution or bank. Both companies and individuals contribute. But Markham says even if Ontario passes the necessary legislation, PRPPs won’t do anything for boomers and the next generation trying to move up.
That’s because the vast majority of boomers – born between 1946 and 1965 – will retire within the next ten years. So even if older workers could start saving in a PRPP immediately, they would only be able to accumulate a small amount of additional retirement savings.
Markham is also disillusioned with attempts to enhance financial literacy and give Canadians a better understanding of how much they need to retire. Of the 1,577 employees surveyed for Towers Watson, 30 per cent had no idea if they were a member of an employer-sponsored retirement savings plan or didn’t know what type of plan they were in.
One effective way to way to promote financial literacy is to incorporate it into the school curriculum for elementary and high school students. But Markham says that even if such a program were introduced, it would be 40 years before this generation of more financially astute people is ready to retire.
He also believes the federal government should better educate the population about the circumstances in which tax-free savings accounts are a better retirement savings vehicle than tax-deferred RRSPs or pension plans. Unlike RRSP withdrawals, money taken out of a TFSA does not impact Guaranteed Income Supplement eligibility for lower income Canadians or trigger an Old Age Security clawback for more affluent seniors.
In spite of depleted retirement accounts and changes to Old Age Security delaying payments until age 67 beginning in 2023, more than half of the Canadian workers surveyed still plan to retire from full-time employment before age 65.