I don't profess to be an expert on a whole lot of things, unless one can be an expert on general knowledge, of which my cup runneth over. Maybe I'm kind of a geek, but I have a never ending curiosity that I find has served me well as long as I can remember. Where some people enjoy other things, there is nothing that makes me feel better than learning something new. I find my most enjoyment in understanding complex subjects, which, by all rights, should be way over my head. So yeah, I'm a bit of a geek.
I've had enough experience writing, giving speeches, broadcasting, researching and working with the public that I'm very comfortable with doing these things. I've also had my share of specialized training in presentation and facilitation, teambuilding, learning styles, conflict resolution, etc., that I can marry the training to the actual experience I have to help people understand complex issues on an "ordinary person" level. For that, I am thankful.
That rambling intro over with, let's talk a bit about pensions. You're hearing more about them, and that will increase in the coming days and years. Since I wish I'd understood some of this when I was younger, I'll share the "ordinary guy/girl's guide to pensions".
There are many different ways your money can be allotted in any pension, getting into all of those details would cloud what the most immediate issue you'll be seeing a lot of in the near future. I like to call this one "The fight of the century: DB vs DC".
Why is there such a huge fight over what kind of pension you have, after all, most people don't even get a company pension. Shouldn't you be happy to have a pension of any kind? Most Canadians probably think this issue has nothing to do with them. I'll attempt to bring some clarity to this.
The reason for the fight can be summed up with a simple comparison. If I were to offer you the choice of a $1000 bank account or $1000 credit on a slot machine, which would you think is best for your future, when you are no longer working. Agreed, those of us who have a pension plan are lucky and chances are we've had to fight for it, fight to improve it, and now, fight to keep it. I understand that's my problem, now, but my problem now may belong to your son or daughter in the future. We all want the best for our children, want them to have advantages we didn't, for most of us, it's what we live for. If you want your children and grandchildren to have a better future you should pay attention. If you have a hard time living on what you earn, what's the future for your children if you agree with lowering wages and reducing benefits? It's not only the public sector, they're just more noticeable. People with annual salaries and bonuses it would take you 20 or 30 years to earn are telling you the person on the bottom is overpaid and gets too many goodies.
The idea is totally preposterous. Do you have an expense account? Company credit card, phone, car, and maybe even accomodations? You fly first class? I've never seen first class. I pay for those perks with my labour. Well, you say, they can be fired at any time, and all they leave with is their agreed upon "settlement" plus a generous severance, stock options, benefits, pension, yes, executives have it bad. How could you look someone in the eye and tell them this is fair. No union member is getting rich, even after working for a career, the best they can hope for is comfortable. A couple of years at the top executive levels of any large corporation or entity and you'll earn more than that 24 dollar an hour guy can in a lifetime and a half. That's the raw truth. To deny it is to fool yourself and leave the next, debt-burdened, generation to a lifetime of never knowing what it's like to make ends meet. It's that serious. Today's target is a pension, once that's taken care of there are other fish to fry. Benefits, wages, positions, and basic working rights we take for granted. Governments, and corporations, emboldened will take every inch of ground they can, at the expense of people today, tomorrow and possible forever.
The are vast differences in the DB, or defined benefit pension, and the DC, or defined contribution pension. Anyone with a DB pension is going to fight to keep it. Here's why.
Do you have an RRSP? I figure if you're reading this, you are not totally blind to what happened in the recent recession. Their RRSP, for the most part based on the stock market, tanked. I know people who lost half or more of the value of their retirement savings in a matter of months. One friend had 50,000 dollars in his RRSP (which is a DC pension) and had to start rebuilding with just over 22,000. The DC pension is a crapshoot. My friends with those pensions will never have what they thought they would for retirement, not because they spent it, because some very greedy bank executives decided to screw the biggest economy in the world almost to death. Not the bank tellers. The executives. If they could blame it on the tellers you bet your ass they would.
In contrast, I admit I am one of the lucky people who does have a DB pension. There is a world of difference. While I watched the savings of 40 and 50 somethings around me disappear, my pension lost no value. Zero, zip, nada as they say. How is this possible? Structural differences. Period.
Whereas a DC pension is at the whims of market forces (just like your RRSP) due to being invested in "the markets", the DB pension works like a bank account. The DC pension is that $1000 credit on the slot machine I mentioned above, if the markets go up, you could retire with a little or a lot more than planned, but the risk is there you could walk away with less or nothing at all. Even if we both make equal contributions to our plan and both expect to have $1000 dollars a month in retirement income, it isn't hard to imagine you retiring with $390 and I will still have the full $1000. With a DB pension, your funds are not gambled on the markets. Theoretically, your employer is required by law, to put your money in a safe place and pay you interest, just like a savings account. You can't take money out, they can't take money out. Mr Stock Market can't take money out. In the end, you still have the money your statement said you have. If you leave the company, they have to give you that portion of money, plus accrued interest, to invest in your own retirement plan. This is how a good, decent, human pension should work. Doesn't everyone want to enjoy themselves for whatever time they have after retiring? There's no greed in that whatsoever. None. All you are asking is the difference between a bank account and a slot machine. I'll take the bank account.
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Mark McCaw ~ twitter's @bigpicguy
Author of "Insights Inside a Mind" ~ blogging the big picture