The latest budget proposal from the province of Ontario, Canada’s largest and most populous province, proposes a mandatory pension plan that all employees and employers in Ontario must contribute to. What the government is telling its people is a simple message: You are not saving enough, so we are going to do it for you. Some people are naive enough to think that the Canadian Pension Plan will be enough to retire on. The fact is, the average payout for the Canadian Pension Plan is only $633.46 a month. Imagine living on that in Toronto, one of the most expensive places in the world to live.
The provincial government isn’t targeting the baby boomers that are starting to retire. It’s too late for them and there isn’t enough money to fund their retirements. Hopefully their children are kind enough to lend a hand. The government is targeting the younger workforce. Those in their 30-40’s that are not putting enough money away to comfortably retire. The sad fact is that the savings rate is really low. The general population doesn’t know how to manage their finances and invest for their future. The pension plan proposal is to do just that. Take people’s money and invest it for them for their future.
The government is essentially saying that the general population is incompetent so we have to do it for you. Most people know nothing about personal finance or even how to keep their own financial situation from falling into a spiralling debt trap. The unfortunate part of this proposal is that the government doesn’t want to educate, but would rather take the reigns away and do it for you. Doesn’t it feel wrong that the government is labelling us as incompetent?
Many provinces are also considering creating their own pension plans to fund the future retiring population. This phenomenon isn’t only happening in Ontario, but across much of Canada as well. Swelling home prices have put much of the working Canadian population into mountains of debt. Debt servicing is taking up so much money that there leaves very little room for savings. It may seem counter intuitive to have to think about retiring at such an early age, but the power of compound interest only helps if you have a lot of time to let it do its magic. The government recognizes this fact and they want to take action now.
I’ve always stated that pension plan managers are probably the best long term investors, but for people who know how to budget and save, is this the best option for them? If you are familiar with finance, you’ll know that liquidity means a lot. Giving your money away to the government and not knowing if you’ll ever get it all back seems too restrictive. It’s not likely that you can ask the government for your principal back and they’ll hand it to you. What happens if you don’t even reach that retirement age? Its money that you’ll never see again.
Unfortunately, for the greater good of the people, those that manage their finances well will need to make that sacrifice for the greater good of the people. Considering the majority of people don’t understand how to manage money, having mandatory larger pensions might be the only way to salvage the future. If this proposal comes to pass, it only shows that the government has given up hope in teaching the population how to manage their finances. I personally prefer education over mandatory participation, but regardless, some action needs to be taken.