What is a pension? How do pensions work?
A pension is income received in retirement. Over the course of your working life, both you and your employer make contributions to your pension. Those contributions are then invested, and upon retirement, your pension is paid from that investment fund. Your pension is essentially forced saving on your part and deferred salary on the part of your employer. Your pension is a combination of your savings and deferred compensation from your employer – it’s not money that is gifted to you upon retirement.
What are the different types of pensions?
Many of our members have defined benefit pension plans. A defined benefit pension plan provides a guaranteed annual income at retirement. Some of our members have a target benefit pension plan. This type of plan also provides an annual income at retirement, but it is not guaranteed because you take on more of the risk associated with the investments and market fluctuations. And some of our members have a defined contribution pension plan. A defined contribution plan does not provide an annual income, instead, you are granted access to your funds upon retirement and you decide what kind of payout model you want.
What is the difference between defined benefit pensions and target benefit pensions?
A defined benefit pension provides a guaranteed annual income at retirement. This is the best type of pension. The employer must ensure the plan is able to pay you and takes on the risk created by investment and market fluctuations. While a target benefit pension pays you an annual income at retirement, it is not guaranteed. If the pension fund does not do well in the market, you may have to pay higher contributions or have your retirement income cut.
How can we protect our defined benefit pensions from employers that want to move to a target benefit pension?
First, we all need to understand why a defined benefit pension is better. This type of pension guarantees your income at retirement and any risk associated with market fluctuations lies with the employer. Moving to a target benefit plan shifts this risk to you. Moving from a defined benefit plan to a target benefit plan is a downgrade. We need to deliver the message to our employers that we will push back on any moves to undermine our pensions.
What are the details of my personal pension? How many years do I need to contribute? And how much will my monthly income be when I retire?
PIPSC does not have access to any individual pension information, although you can find some general information on our pensions page. You can find a detailed calculation of your Public Service Pension through the Compensation Web Applications or by phoning the Pension Centre. For other pensions, contact your HR department for additional plan information.
Are private or workplace pensions too expensive or unsustainable?
Over the course of your career, you and your employer contribute to your pension. This is essentially forced saving on your part, and deferred compensation on the part of your employer. Those funds are then invested, and upon retirement, your pension is paid from those funds. Depending on the type of pension you have, your employer may be responsible for ensuring that the pension is able to pay you when it comes time for you to retire. However, if a pension plan’s rules are followed and the plan is well-managed, the likelihood of your pension becoming too expensive or unsustainable is low.
Is the Public Service Pension (PSP) Plan too expensive or unsustainable for the Canadian government?
Over the course of your career, you and your employer (in this case, the Canadian government) contribute to the PSP. This is essentially forced saving on your part, and deferred compensation on the part of your employer. Those funds, along with the contributions of your colleagues, are pooled and invested. Upon your retirement, your pension is paid from those funds. Defined benefit pension plans, like the PSP, are built for the long-term – meaning they can weather short-term dips in the market.
As of March 31, 2019, the PSP plan was valued at $168 billion and, despite recent market fluctuations due to the COVID–19 pandemic, is still believed to be in good, stable condition.
What about PSP pensions prior to 2000?
Prior to 2000, public service pensions were paid directly from employer and employee contributions. Because the plan was not properly invested, there were no investment earnings to cushion pensions from sudden changes to costs or revenue. The plan was volatile. In 1999, the Public Sector Pension Investment Corporation was created to separate pension contributions from other government funds. The Public Sector Pension Investment Corporation has independently managed the employer and employee pension contributions since 2000 – investing them in the Canadian and global economy. This means that when you draw your income at retirement, it comes from this investment fund and not directly from government funds. This makes the PSP plan sustainable and cost-effective for taxpayers.
We have it pretty good. Why do we need to worry about protecting our pensions?
We need to protect our own pensions and fight for a secure retirement for everyone.
Federal and provincial governments have opened the door to legislation that could threaten our workplace pensions. For example, in 2016 the federal Liberal government introduced a bill that would have allowed federally regulated and Crown corporation employers to transition secure, defined benefit plans to risky, target benefit plans. And the Conservative provincial government in New Brunswick actually succeeded in passing similar legislation that impacts PIPSC members in that province.
Beyond that, only 37% of people in Canada have workplace pensions to secure their retirement, and only 25% have secure defined benefit plans.
Without a workplace pension, seniors have to rely on personal savings, the Canadian Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Supplement (GIS). In Canada as of 2018, only 22% of people who filed taxes contributed to their RRSPs and Canadian households on average saved only $852.
Government retirement programs alone leave many seniors living in poverty. And, precarious jobs today are setting young people up for the same precarious retirement. This is why the Canadian labour movement fights for pensions for all and improvements to these government programs.
What are we doing to support people without workplace pensions?
Government retirement programs alone leave many seniors living in poverty. And, precarious jobs today are setting young people up for the same precarious retirement. This is why the Canadian labour movement fights for pensions for all and improvements to these government programs. Everyone in Canada deserves a secure retirement.
In 2019, the Canadian Labour Congress fought and won an increase in CPP to one-third of the average income from one-quarter. An important step toward the goal of increasing CPP to 50% of average income. We can win and ensure a secure retirement for everyone.
We stand with the Canadian Labour Congress in the fight for a secure retirement for all. It is unacceptable to have elders living below the poverty line and we won’t stand by and allow that same fate for young workers.