From Maple Leaf to Mutual Funds: Retirement Shift in Canada

From Markham, Ontario - Canada's richest city - to impoverished Truro, Nova Scotia, Canadians hear a warning: Save for your own retirement, because the government won't do it for you.

"The government plans are going broke," financial reporter Brian Costello tells an audience of 600 at a Sheraton Hotel on the edge on Toronto.

In a nation long used to generous public benefits, such calls for action signal a shift that puts more of the retirement burden on the individual saver.

It is a transition faced not only by Canada but also by industrialized and developing nations around the world. The debate over "saving" Social Security in the United States before the baby boom generation enters retirement is just one example.

The World Bank has called it "a looming old-age crisis" and urges a mix of public and private systems as the solution.

That's what is developing here in Canada.

Canadians have been putting record amounts of money into mutual funds. In February alone they put more than $10-billion (Canadian; US$7.18 billion) into funds, the bulk of the cash flowing into equity-based mutual funds. While many would have saved anyway, others are concerned that two major government plans will not be there when they retire.

And they are prodded by financial planners, who book meeting rooms every weekend at hotels across Canada. People are told the same message:

"The only way to provide for your retirement is to save, preferably in equity-based mutual funds," says Mr. Costello.

He is the warm-up act for professional planners, who line up customers after the speech has scared them into saving.

It's a performance repeated year round, but it hits a peak in the first two months of the year, when Canadians put money into retirement savings plans, the equivalent of an individual retirement account in the US.

Canada's at-risk government retirement plans are called the Canada Pension Plan, paid for by every working Canadian, salaried or self-employed, and Old Age Security, which is sent to every Canadian over age 65.

Already, provincial and federal governments tax back Old Age Security payments from all but the poorest Canadians.

And without change, the Canada Pension Plan (CPP) fund will run out of money is less than 20 years, Paul Martin, Canada's Minister of Finance, said early this year.

In February, the government moved to correct this problem. Currently, $945 is the maximum annual amount any Canadian pays into the CPP. That will increase to as much as $1,635 by 2003.

It's either a huge tax increase or a guaranteed pension, depending your view.

"The most regressive tax increase ever to hit our country," comments Ian McClelland, a member of Parliament for the Reform Party. His party favored shutting down the CPP and forcing Canadians to run their own Registered Retirement Plans, funded by themselves and their employers.

There was wide agreement, even among conservative economists, that the system needed repair before the population bubble started to retire.

The government will now allow some of the fund to be in the Canadian stock market. Until this year it could only be invested in bonds issued by Canada's 10 provincial governments, sometimes at low interest rates not available in the open market.

Even with the reforms to the Canada Pension Plan, Costello will still be in business, giving his weekend speeches.

"The maximum payout for the Canada Pension Plan is C$8,840 a year," he tells the crowd. "If you want any more than a subsistence living in retirement, you better keep socking money into retirement plans."