Friday, January 9, 2009

Pension Storms All Around Us

Sadly pensions have become top news in many newspapers, government offices and coffee shops. The discussions are around the recent meltdown in value of these plans and the potential implications this crisis has for retirees.

The talk is mainly of defined benefit pensions. Those are pensions that guarantee the retiree a continued stream of income after they retire. These pensions exist for almost all public sector employees and a few private sector employees, mainly large ones.

These types of plans are in trouble for several reasons.

The promises made by defined benefit plans are unsustainable. They began in the 1960's when there were more than 10 workers for every retiree. Within a few short years there will only be 4 workers for each retiree.

The amount of money required to fund into these plans is a huge burden on all levels of government. The CD Howe Institute estimates that 30% of salary needs to be contributed into these plans. A typical retiree will retire with a pension fund value close to $1,000,000.

The recent performance on the stock markets has caused the vale of many of these plans to collapse. In the coming few weeks sound of discussions about pensions will rise into a roar heard across the country and the world.

There is a simple solutions to the problems we will be seeing. Public sector pensions need to be reformed. It will be a very difficult battle to reform these pensions. The public sector unions have billions of dollars at risk.

Over the past few weeks I have been following a debate about pensions in St John NB. The history of the debate can be followed at the sidebar with the terrific editorial cartoon. Check for my letters printed in the Telegraph Journal.

Thanks for checking out my blog. Any comments you have for me would be greatly appreciated.

Bill Tufts

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