11/29/2013 05:30 EST | Updated 01/29/2014 05:59 EST

Pension Warnings Worrisome As Seniors' Debts Grow

The "huge economic crisis" that Ontario Premier Wynne has warned about, citing concerns that the Canada Pension Plan (CPP) is insufficient for the future needs of the country, has had some interesting context provided by a report from the Organization for Economic Co-operation and Development (OECD).

The respected group of international economists has pointed out that Canada is going in the opposite direction to almost all other OECD countries, having seen old-age poverty rates actually rise 2 per cent between 2007 and 2010. Only Poland and Turkey shared this unfortunate distinction within OECD countries, while all others saw seniors' poverty rates decline.

Like most studies, however, this OECD report does need some interpretation. Specifically, it acknowledged that poverty rates amongst Canada's senior are actually amongst the lowest of the OECD countries, despite the 2 per cent increase between 2007 and 2010.

None the less, the report did raise issues worth taking stock of on a societal level in Canada. It noted that while seniors in countries like France, Italy and Germany receive 59 per cent of their gross retirement income from government pensions, in Canada this amounts to only 39 per cent. The report stated that Canadian seniors rely on personal capital and private pensions for 42 per cent of their retirement income, as compared to a meagre 18 per cent average in other OECD countries.

Added to this disproportionate pension consideration are the debt loads Canadian seniors are already carrying into retirement. A recent CIBC poll revealed that 59 per cent of retired Canadians are still carrying debt and their debt loads are growing. A report from the credit agency Equifax identified that the "average debt for consumers aged 65 and over shows the greatest year-over-year increases in all age groups at 6.5 percent."

Added to these debt challenges are insufficient savings. A BMO report has raised the alarm, citing that "boomers are more than $400,000 short of their ideal retirement nest egg."

With a new RBC study revealing that 41 per cent of retirees do not leave their jobs by choice, the current debt and insufficient savings statistics reveal the "big picture" concerns inherent to the OECD's report. Our seniors are reliant upon personal capital and private pensions significantly more than those in other countries. Despite this, their debt loads are growing, their savings are deficient by hundreds of thousands of dollars and almost half are forced into retirement sooner than they expected.

With this in mind, one may ask where the policy and political leadership is in this potential crisis-in-the-making. Yes, two provincial Premiers have raised the issue and eluded to augmenting the CPP with a second tier of provincial income support. But is this feasible? Can we have retirement income disparities across the country, based on provinces that may roll out a regional pension plan and other that do not?

The federal Finance Minister has indicated that increasing contribution requirements to the CPP is not in the cards, as it would impair the economic recovery underway in the country. Others disagree with this assessment, stating the required costs to employers would be nominal and the issue simply can't be deferred. Whoever may be right, it seems fair to say that the OECD report has shined a pretty bright light on a problem that needs addressing. If strategies can be found in times of crisis to bail out an auto sector, or roll out stimulus spending post a global recession, an answer to this pension deficiency could probably be found if put on the national stage and the provinces consulted.

Faced with the level of debt many seniors are currently carrying and the significantly underfunded retirement savings of many Canadians, the "fraying" of the CPP is a matter that needs addressing. If left unchecked, its impact could be on the national economy and not just the individual families affected.

In the meantime, boomers entering into retirement need to be looking at their situations and having some critical conversations. What happens in the absence of a national pension strategy that adequately supports seniors' incomes in a proportionately comparable manner as that of other countries? With our seniors drawing 42 per cent of their retirement income from their own savings and private pensions, found to be deficient and shackled by growing debt, will boomers need to move back in with their kids? What would that 'look like' on a national level? What are our 'millennials' willing to do, facing parents being forced to retire before they planned to and with inadequate savings.

Like any debt, or financial, challenge, this is a matter that will need some crucial conversations, honest reflection, maybe some lifestyle changes and a viable plan. It appears it may also need some political leadership at the federal and provincial levels.