Feds “attack” middle class on pensions

While Ontario considers a provincial pension plan and Ottawa has rejected expanding the Canada Pension Plan,  a new Bank of Montreal poll shows 89 per cent of Canadians rely on CPP, and 30 per cent count “heavily” on it.

Ottawa rejected the expansion of the Canada Pension Plan at the end of 2013, saying the responsibility for retirement savings belongs to every Canadian. 

Paul Forrestell, a senior partner at Mercer told the Financial Post that the rejection of a CPP expansion is a direct attack on middle income Canadians who now need to face retirement on their own.

Despite people’s best intentions, retirement is currently being cut short for 30 per cent of Canadians over the age of 55 who must return to full-time work because their retirement savings don’t stretch as far as they expected.

The average monthly payment from CPP is less than $600 and the maximum tops out at just over $1,000. The numbers are not increasing anytime soon, and BMO wealth planning strategists strongly advise that diversified savings are the most secure retirement portfolios.

Chris Buttigieg, a senior manager of wealth planning strategy at BMO says that Canadians should focus on creating their own retirement contributions elsewhere and should view CPP or QPP as merely a supplement to other savings, according to the Globe and Mail.

The steep learning curve of financial investing

Motivation and diligence are not enough to carry Canadians into old age. A recent survey from ING revealed that nearly one-third of Canadians don’t understand how tax-free savings accounts (TFSAs) work and nearly 38 per cent don’t understand the annual contribution limits.

Investment trainingForrestell says that a lack of education is why most Canadians do not know how to manage their investments.

Canadians must equip themselves with all the knowledge of an investment professional as well as a tax professional in order to invest properly during their working years.

Come retirement, they need to learn how to pay out their savings with the least cost. Forestell believes that Canadians are just not prepared to do that.

The Bank of Montreal survey that polled 1,003 adults last November also found the following:

  • 88 per cent said they would use personal savings like RRSPs or tax-free savings accounts to help fund retirement
  • 59 per cent said they would likely take a part-time job
  • 49 per cent planned on selling their homes or property for some cash
  • 40 per cent were counting on an inheritance
  • 34 per cent hoped to win a lottery
  • 28 per cent say they expect to get financial assistance from their children or other family members


Pooled Registered Pension Plans and Ontario Pension Plan

Retirement savings will get more complicated with the Pooled Registered Pension Plans (PRPPs), a federally supported pooled pension sold by financial services companies on behalf of employers and employees who do not have a workplace pension.

Licenses to sell have been granted to some companies, but adoption of the legislation is voluntary for provinces and many have not adopted it.

Ontario Premier Kathleen Wynne rejected PRPPs because the province is worried people are not saving enough for retirement because the contributions are voluntary.

The Ontario liberal government is working on a new Ontario Pension Plan that is will be revealed this spring. Former Prime Minister Paul Martin was appointed to head the advisory panel overseeing the plan.

To date, there has been little information released regarding the plan. Wynne says the plan will not be added as a payroll tax, but rather it will be a mandatory assistance program to help people do what is necessary to save for retirement.

Mr. Ambachtsheer, director of the Rotman International Centre for Pension Management, says the plan would be monitored by an arms-length organization with a separate board and a clear mandate, according to the Globe and Mail.

The plan will register all workers by default but would allow opting out should someone be able to prove they are saving enough elsewhere. The system is thought to be similar to the National Employment Savings Trust in Britain, that provides plans for workers whose employers do not already offer one.

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