Toronto, ON – At a time when income is stagnating and most household budgets are stretched to the limit, saving for retirement is incredibly challenging. Without a secure and decent public pension system to rely on, many Canadians are in a precarious situation when it comes to planning for retirement.
Common Wealth, an organization that advocates for strengthening the public pension system, and offering the first collective retirement plan for lower and middle-income Canadians, the Healthcare of Ontario Pension Plan (HOOPP) and the National Institute on Ageing recently produced a timely study that compares the cost of savings through individualized savings versus collective models.
The results of the study point to what the labour movement has been advocating for decades; a strong public pension system and collective pension plans in workplaces. The findings of the study are clear, a Canada-model pension plan, including collective pension plans in workplaces are less costly, and not just for individuals, but employers and government, as well.
The study draws attention to the fact that when people save on their own they tend to, “save less, save later and less consistently,” than when they are part of a collective plan. When saving individually, a person needs to be fairly accurate in predicting their own longevity and take on investment risk, which requires costly strategies to avoid outliving their retirement savings. Conversely, collective pension plans manage longevity and investment risk much more efficiently and accurately.
Then there’s the issue of how much it costs to save for retirement. The research shows that the costs of investment management and administration for good collective pension plans are significantly lower than the costs of retail investing and advice, which is the option for individual savers.
Saving through a collective approach is four times less costly than when saving on one’s own. This roughly amounts to $890,000 in savings over a lifetime. Put differently, in order to maintain the same standard of living in retirement, an individual would need to save $ 1.2 million, whereas when saving through a Canada-model type plan, one would need to save approximately $ 300,100. This is a significant difference, and one that ensures that retirement is an option that allows people to live in dignity once retired.
It is irrefutable that being part of a collective pension plan is less costly and ensures that workers start saving earlier, more consistently, avoid poor investment choices and pool risks, which results in major cost savings.
But, perhaps most importantly, findings of the report indicate that when investments are managed on a non-profit basis by in-house professionals with a fiduciary duty to members, much like the IAM’s pension plans, they tend to perform better than funds offered by for-profit organizations.
Overall, the study raises an important matter. The Canada-model pension model is held in high esteem globally, and also happens to be one of the most efficient retirement models in the world.
This begs the question as to why Canada is moving away from such a system to one that is more costly, less efficient and jeopardizes the retirement of an increasing number of Canadians.
The evidence is there; a public system, and good workplace pension plans are a better and more secure option for retirement, yet employers and the government are moving away from such plans. It is time to not only engage union members in this important issue, but also to take action and engage policy makers and the government.