Collective Wealth vs. Concentrated Wealth.

Pensions funds vs private savings: which is bigger? And why does it matter? It matters because only a lucky few are enrolled in pension funds mostly through employment and others have to save on their own if they can. Ideally you ought to have both a pension fund and that ‘Freedom 55’ dream of private savings as well.

Canada’s public-sector pension plans are high profile, widely admired and they’re certainly bigger than they used to be,” said Malcolm Hamilton, a pension expert and senior fellow at the C.D. Howe Institute in Toronto. (source)

For those without a company-pension plan, an example of doing it yourself is:

SEIU Healthcare announced the first retirement plan aimed at the needs of modest earning Canadians. The My65+ plan is designed to be low-fee, portable, and structured to preserve government benefits.. Designed for working Canadians with no workplace pension earning less than $50,000 per year. (source)

Yet one columnist says, “No RRSP (private savings)? No problem — not everyone needs one.” (source)

Oh no if this is your prevailing philosophy. The article is saying, if you make less than $45,000 a year, the tax-break you get for saving money in a ‘retirement plan’ isn’t worth doing so.

A pension plan, such as the first item, is paid for by your employer but not everyone has one. So you are encouraged to also save money for retirement on your own, whether you have an employer-pension or not. As noted before, the size of all pension plans in Canada is worth $1.5 trillion with 13 million members, which works out to $115,000 at 65, the mandatory retirement age. This means you have to live off $115,000 from 65 until you die, if all you have is this pension. The government contributes a little to senior-citizens. But the Freedom 55 ‘dream scenerio’ is aimed at getting households to save additional amounts to this pension.

“$500,000. That’s the amount you need to have banked by the time you retire.” (source)
If you are lucky enough to have a company-pension, that gives you $115,000 at 65 years old, the financial managers recommend a minimum of $500,000 for a middle-class lifestyle.

These pensions are a form of concentrated wealth because they are managed by a few managers on behalf of your employer, not you. If we all save on our own as well, we are in charge of what to do with our money, each of us – which is collective wealth. There are a multitude of private savings choices, like the diversity of mutual funds. So while no one will turn down a company-pension, if collectively we aren’t saving, the financial system is lope-sided.

In the last year, Canadians dipped into their private savings account, by $17,213, a slight increase from the previous year. Year over year, Canadians are putting money aside during the year only to take it back out to pay off consumer debt or buy a house..but year over year. I mean to say, this isn’t a one-time instance such that year over year, there is no accumulated collective wealth. If collectively, Canadians only own homes as their primary source of asset-wealth, they have no collective influence on what concentrated wealth does on an international level.

They rank as five of the top 30 global real estate investors, seven of the world’s biggest international infrastructure investors, and were at the table during six of the top 100 leveraged buyouts in corporate history. (source)

It matters as a point of Canada’s identity – that we are under-represented. In another part of the financial sector, our retail banking system has this issue: “Employees from all five of Canada’s big banks have flooded Go Public with stories of how they feel pressured to upsell, trick and even lie to customers to meet unrealistic sales targets and keep their jobs.” (source)

Is this indicative of our bad savings habits? “The BIS tracks four “early warning” indicators of stress in domestic banking systems, and Canada was the only country that triggered red lights in three of the four.” (source)

When your home is your primary asset-wealth, something like this scenerio can happen:

“Juanita was already taking care of her 87-year-old mother when her husband had a heart attack so serious that he couldn’t return to work. The 60-year-old Newfoundland woman had been eking out enough as a personal support worker to cover living costs for all three of them — until her sister was diagnosed with stage four cancer. Juanita gave up more shifts to care for her sister as well.” (source)

Though domestic banks are making record profits from more mortgages, these funds aren’t as ‘flexible’ as those of pension funds, meaning banks have to keep more cash on hand in reserve for situations like Juanita’s.

“As household debt levels swelled amid housing booms in Vancouver and Toronto, groups including the Organization of Economic Co-operation and Development, CMHC and the even the department of finance have called for lower risks to taxpayers. (source)”

So despite more home ownership, more bank profits, Canada’s financial system on an international level is dominated by the lone voices of concentrated wealth.