Are you worried about the stability of your company-sponsored pension plan? You’re far from alone – but just how worried should you be and is there anything you can do about it? Here are some answers that may allow you to look forward to retirement with the assurance that it can be exactly what you’ve always dreamed.
What is causing the current concern about pension plans? A series of factors that some experts have dubbed the perfect storm: An aging population is increasing the need for pension plan payouts during this time of low interest rates and a stock market downturn. At the same time, companies are being squeezed by shrinking sales, markets and margins, making it more difficult for many of them to maintain employer pension plan contributions at previous levels and/or to set aside enough money to fund future obligations.
What does this mean for me? It really depends on the relative health of your company’s pension plan. Companies are required by law to honour pension agreements as long as they remain in business. But even if your company should fail, all funds remaining in the pension fund are distributed to eligible employees in a manner that the Court determines is fair.
What about the Canada Pension Plan (CPP)? It’s in good order, according to a report earlier this year from the federal, provincial and territorial Ministers of Finance who are joint stewards of the plan. This triennial review found that CPP remains on sound financial footing and is well positioned to weather the current market turbulence.*
Changes to the plan will be phased in beginning in 2011 that will provide greater flexibility for those choosing to receive CPP benefits before age 65 by allowing them to continue working while receiving the benefit and to continue participating in CPP to increase it.
What can I do? First, try not to do what many people have done during this economic downturn – and that is, take a short term view and act too quickly. Instead, you should make every effort to boost your personal pension plan contributions – especially inside your tax-saving, tax-deferred, Registered Retirement Savings Plan where compound growth works to your best advantage, even in sluggish markets -- and to stay the course with your other investments. Remember, you haven’t actually lost any money on your registered or non-registered investments unless you lose focus on your long term financial objectives and cash them out when the market is at a low ebb instead of waiting for the inevitable upward cycle that history tells us usually comes to the market.
When you prepare adequately for the long term and maintain an investment portfolio that fits your appetite for risk and life goals, you’ll get where you want to go, even in the face of pension plan and other economic storms. Your professional advisor can help you navigate to calm waters and a clear future.
John Scholl B. Mathematics, CGA,
Consultant - Investors Group Financial Services Inc.
Wealth Management & Financial Planning
(905) 450-2891 (866) 799-2223 Cell(416) 731-3660
* Finance Canada News Release: Finance Ministers Indicate Canada Pension Plan is Financially Sound, www.fin.gc.ca/n08/09-51-eng.asp