Monday, August 12, 2013

Pension Woes

As far as pensions go, the generation before the boomers did very well. The early boomers will probably do ok as well, but the later ones probably not so well. (We early boomers also did much better in the job market than the later boomers.) The younger you are in the current system the less likely you are to fine in the pension department unless something is done to fix pensions.

With the declining birthrate, a picture of the ages of our populations goes from a pyramid shape to a column shape. (I know that people are thinking that it will go to an upside down pyramid, but this is not what is happening.) The problem was that most pension plans were set up as a pay as you go type and in the future there will not be enough people paying into pensions to supply pensions to those retired.

In a pay as you go pension, the current pension money collected goes to pay the pension of the people already retired. This can work for a while. There are a couple of problems. As more and more people are able to retire to get a pension, the number of pensioners grows. With a declining birth rate, there are fewer and fewer people to pay into pensions.

With CPP the boomers' parents did well. My father told me that he only had to pay into the CPP for 10 years to get a full CPP pension. That was a great deal for him. For my parents, my father got OAS, CPP and a company pension. He also had some savings and a paid for home. My mother got OAS. They did very well.

I also have done well with CPP. Because my husband died and I had a child, I got a widow's pension. I also got an orphan's pension for my son. I start to collect my CPP at 60 because I got my pension money plus the widow's pension. (The pension money was decreased at 65.)

Not all pensions were supposed to be run as a pay as you go, but most were. That has led to pension plans that are underfunded. The underfunding of pension plans is especially bad in the US. The Detroit government workers' pension plan is only the tip of the iceberg in US. There is also a problem with the Social Security Plan in the US. Money collected went into the government's general funds, as I understand it, and when the payout has to be higher than the current collection, they will have problems.

There are some problems in Canada. The CPP premiums were raised substantially in 2000. The CPP Investment Board (CPPIB), the organization responsible for maintaining the national pension plan's investment assets, said in 2009 that their actuaries said that the plan was solvent for the next 75 years. However, I have heard others say that it will only be fine for the next 20 years.

On my other blog I am today writing about TECSYS Inc. (TSX-TCS, OTC-TCYSF)...continue...

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