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Discarded placards overflow from a garbage bin on Parliament Hill following a demonstration in support of Nortel pensioners on Parliament Hill in Ottawa, Wednesday October 21, 2009. THE CANADIAN PRESS/Adrian Wyld (Adrian Wyld/The Canadian Press)
Discarded placards overflow from a garbage bin on Parliament Hill following a demonstration in support of Nortel pensioners on Parliament Hill in Ottawa, Wednesday October 21, 2009. THE CANADIAN PRESS/Adrian Wyld (Adrian Wyld/The Canadian Press)

Part seven: Reforming a broken system

Canada's gathering pension storm Add to ...

Poor Giulio Tremonti. Italy's finance minister not only has the thankless job of playing bad cop to his populist boss, Prime Minister Silvio Berlusconi. He's also got debt-strapped Europe's worst public finances to manage.

With the world's oldest population after Japan, a birth rate that makes Canadians look like prodigious procreators, and the cushiest public pensions anywhere, Italy is deep in the hole and sinking deeper by the day. Public pensions already account for about 30 per cent of government spending in Italy. Each passing year leaves fewer and fewer working Italians left to foot the pension bill for their elders. But the ballot-box clout of Italian seniors means any attempt to roll back benefits is a political suicide mission.

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Italy may be one of the worst off, but all developed countries, along with China, will experience unprecedented economic and social pressure in coming decades as their populations grey. Few, if any, have prepared for the demographic tsunami that will hit them as the baby boom generation heads into its golden years.

By comparison, Canadians have some reason to feel fiscally smug, with a public pension system considered one of the world's most financially sustainable.

There's only one catch: That system pays among the least generous government-sponsored benefits in the developed world.

It's a prudent approach, but it's laying the groundwork for a host of other problems.

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The proportion of seniors in Canada's population will balloon to as much as a quarter of the population by 2030, from 14 per cent now. Middle-class Canadians without a workplace pension plan or personal savings to fall back on face a sharp and sudden decline in living standards when they leave the work force.

With millions more retirees living on subsistence-level public pensions, the economy will see a lot less of the discretionary income that has normally fuelled consumer spending.

"An aging population leads to a slower-growing work force and that leads to slower economic growth," warns University of Toronto economics professor David Foot, who first outlined the impact of shifting demographics on the economy in the 1996 bestseller Boom, Bust & Echo.

"We've got to build these slower economic growth projections into our corporate strategic models and our government revenue projections. I don't think that realization has taken hold yet."

The tsunami on the horizon It wasn't supposed to turn out this way. When Canada's public pension system was set up in the 1960s, the economy and personal income were both growing rapidly. Women were flooding into the work force, generous defined-benefit pension plans provided by employers were becoming the norm and Registered Retirement Savings Plans were taking flight. Policy makers anticipated that most baby boomers wouldn't need government help in retirement.

Yet today three-quarters of Canadians in the private sector have no employer-sponsored retirement plan. Less than a third contribute to an RRSP and only a tiny fraction stash away the maximum allowed - 18 per cent of earnings up to $21,000 annually. A generation raised on immediate gratification has preferred to spend (usually on credit) rather than build up a nest egg.

Forget the promise of early retirement. Millions of currently middle-income workers will be forced to hold down a job well past 65 and, even then, will face straitened circumstances when they do retire.

The coming crisis is one that politicians here are being forced to face up to as the first wave of the baby boom generation prepares to enter senior citizenship in 2011. The dilemma has many experts pushing for massive reform that would include an entirely new public plan to complement or even replace the Canada Pension Plan (CPP), company pensions and RRSPs. If Canadians won't voluntarily save enough, some experts contend, maybe it's time the government forced them to.

Some provinces have taken tentative steps to address the so-called pensions gap. Ottawa, meanwhile, has set up its own "research working group" on pension reform, led by Conservative MP Ted Menzies.

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