Monday, March 21, 2011

Working Longer Only Way To Keep Pensions Afloat

If you think that expanding the CPP is the panacea - think again:
Making people work longer is the only way governments can keep pension systems going without cutting benefits to the point of driving the elderly into poverty, the OECD think tank said on Thursday.

As aging populations strain retirement coffers, countries around the world will have to raise retirement ages despite deep-rooted public opposition, the Organization for Economic Cooperation and Development said in a report.

"Working longer, even if it is very hard for people who don't want to, is the least painful option," the OECD's head of social policy, Monika Queisser, told journalists, noting efforts so far to prune back benefits had not been enough.
By the way, that already happens here in Canada. The new rules that are to be phased in between 2011 and 2016, offer more incentives to postpone retirement to the age of 70, (the maximum bonus for late retirement increases from 30% to 42%,) while further reducing the benefits of those choosing to start drawing at the first opportunity (they'll only get 64% of the benefit, instead of 70%). Also, should a CPP recipient choose to return to the job market - he'll once again have to contribute to the plan - in exchange for slightly higher benefits.

One way or another - they need you to work longer, so that you keep contributing to the plan, rather than start drawing from it. What else could they do, considering that they've already boosted the premiums a whooping 175%? Raise the benefits even further? Let's not forget - the low- and middle-income earners will be the hardest hit. Make them pay 6, 7, 8 or even 10% (double that rate for the self-employed) on top of the lowest income tax bracket (20-26% depending on the province,) and what will they have left for basic living expenses? Being able to retire at 65 at government expense is great, but when even those below the poverty line have to pay 30-35 cents on every extra dollar they make, many may not even make it to that age.

So, there's no choice - work longer and don't forget to build-up some independent retirement savings. And if you don't like that idea - how about having a few more children? Let's not forget - the CPP was implemented during the last years of the "baby boom". Only then the society could reasonably hope that there would always be enough young men in the workforce to sustain a pay-as-you-go defined benefit public retirement plan.

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