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A report by the Institute for Research on Public Policy takes a darker view of the adequacy of post-retirement incomes than some other high-profile reports.
A report by the Institute for Research on Public Policy takes a darker view of the adequacy of post-retirement incomes than some other high-profile reports.

Pension membership takes a heavy hit in private sector Add to ...

For the first time, the majority of Canadians who have workplace pension plans are government employees, according to new data that highlight the growing disparity between private and public sector workers as the baby boom generation nears retirement.

The recession, and in particular the massive job losses in factories that it caused, accelerated a long decline in pension plan membership in 2009. The number of private-sector workers with pension coverage declined by 2.1 per cent, Statistics Canada said, to just below three million.

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That means that more than half - 50.2 per cent, or 3.03 million people - of the country's pensioned workers are in jobs in the civil service or at government-funded institutions such as universities and hospitals. A decade ago, public-sector plans represented 46 per cent of all pension plan membership in Canada.

The numbers are likely to add fuel to the debate about the country's retirement system. While job losses in hard-hit sectors have helped to drive down the number of employees with pension plans, many companies have also looked to cut costs by eliminating so-called defined benefit plans - which pay the worker a guaranteed income upon retirement - for new employees at least.

No such trend is evident yet in the public sector, although there is political pressure to do something to curb the wage bill at the federal and provincial levels as governments seek to cut billions from their fiscal deficits. About 80 per cent of public-sector employees have a workplace pension plan, while just 25 per cent of private-sector employees do.

The pension statistics reflect the impact of the recession that began in 2008. The manufacturing sector posted the greatest drop in private-sector pension plan membership in 2009 with a decline of 3.6 per cent, a result of rapid job losses in automotive and other industries. Canada lost nearly 600,000 manufacturing jobs during the recession.

"It comes back to an employment story more than a pension story," said Paul Forestell, senior partner at pension consulting firm Mercer. "Jobs disappeared, so there are fewer people working in manufacturing in the private sector. It's not necessarily that [pension]plans disappeared, there's just less people employed there."

The recent revival in private-sector hiring will not necessarily reverse the trend, he said. "You see these employment stats coming back, but a lot of it is in different job sectors, like knowledge-based industries, which tend to have less emphasis on retirement savings."

Statscan's figures also underscored a gender shift in workplace pensions. In 2005, working men with pension plans outnumbered women by about 265,000. That gap has now almost completely closed. The agency said there was a 4.5-per-cent drop in employment for male workers in the private sector during the last economic downturn.

The recession hastened a long trend toward reduced use of traditional defined-benefit pension plans in the private sector and greater reliance on defined-contribution plans, which do not pay a guaranteed level of income in retirement. DC plans pay fluctuating amounts to retirees based on the performance of investments in the plan, similar to a personal registered retirement savings plan. Most businesses prefer them because they are cheaper and because they transfer the risk of poor financial markets to the employees.

While private-sector membership in DB plans fell 3.6 per cent in 2009, the drop was somewhat offset by a 1.8-per-cent overall increase in membership in DC plans, Statscan reported.

The Statscan data was released on Monday just as pilots at Air Canada were voting on a company offer that would close its defined benefit pension plan to new hires, who would instead belong to a defined contribution plan. CEO Calin Rovinescu said the company's pension plan is not sustainable.

"We are an airline of 26,000 employees supporting 29,000 retirees," he told pilots in an internal message urging them to support the proposal.

Pension specialist Ian Markham of consulting firm Towers Watson said all signs suggest the trend toward reduced pension coverage in the private sector is only going to continue in the same direction.

A survey of Canadian plan sponsors earlier this year by his firm found that only 42 per cent of publicly traded companies with defined-benefit plans still had them open to all employees, while 39 per cent had closed their plans to new hires and 17 per cent had closed them to all employees.

"All of these pension plans are maturing. In the private sector, generally speaking, the pension liabilities are becoming a bigger percentage of corporate liabilities over time," Mr. Markham said.

"That means it becomes more and more imperative for the CFO or the board to find some way of mitigating the volatility, which is potentially getting worse and worse."

Overall membership in pension plans increased a modest 0.2 per cent in Canada in 2009, with the public sector accounting for all the growth. Statscan said 39 per cent of all Canadian workers have a workplace pension plan.

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