Precarious Employment & Lower for Longer


In Niagara Falls on October 22, 2016, Bill Morneau, Canada’s Finance Minister, advised young Canadians to get used to “job churn”. Mr. Morneau expects high job turnover and short-term contract work will continue in young people’s lives and the government has to focus on preparing for it. This speech has been referred to as ‘precarious employment’. Rob Carrick wrote a nice piece on the subject.

A month earlier in Quebec on September 20, 2016, Stephen Poloz, Governor of the Bank of Canada, told us that we should expect to live with low interest rates for much longer. In the Governor’s mind – this was good news for the young who were paying mortgages and bad for retirees that are struggling to generate a decent income from their retirement savings. This speech has been referred to as ‘lower for longer’. By the way – it is not good news for young people that can’t afford a house or are paying outrageous prices for housing because low interest rates are driving a housing price bubble…but that is a discussion for another day.

When I started writing my commentaries in 2012 I initially focused on helping individuals navigate the challenge of finding their way to a comfortable retirement. By 2013 I had started to focus on the role of government in helping us all reach our retirement goals.  At the end of 2013 – with no idea that something called the ORPP would raise its ugly head – I was focused on my worry that putting too many eggs in the CPP basket would not be a wise decision. The last three years has seen the ORPP come and go and an expanded CPP has gone from fantasy to reality.

What I find amazing about the speeches mentioned at the outset of this commentary is how these reportedly intelligent men are failing to connect all the dots when it comes to the Canada Pension Plan – the purported darling of retirement savings engineering. When I criticize CPP and its expansion – mostly for my worry of putting too many eggs in one basket – my concerns largely seemed to be dismissed.

Connecting the dots

In my second commentary in 2013 on expanded CPP I expressed my worry that:

“Everywhere I go, I find reports that tell us that the children of China, India, and Brazil will ensure that our children will increasingly live in a declining real wage environment. I don’t think we should bank on any real wage growth for the coming decades”

This is a worry for parents and children – but it is a worry for all taxpayers that are relying on wage growth to fund future CPP pensions.

Earlier this year my commentary on expanded CPP reinforced that:

“The entire engine for the CPP is economic growth. If the economy grows, not only do wages grow, but employment grows, and so too do the returns on our investments.”

So if we don’t have growth in Canada, we aren’t going to have good long term investment returns in Canada.

The savvy investor can point out that we can invest our CPP nest egg outside of Canada where the returns are better and so sluggish growth in Canada doesn’t doom the CPP to low returns.  But when you connect the dots – here is the picture you find. If Canada is growing slowly won’t most of the rest of the world be doing the same? Even if you can find countries where the growth opportunities are better than Canada, investing outside Canada helps grow those countries at the expense of Canada, and you reinforce the problem of a lack of wage and job prospects for Canadians, that Mr. Morneau sees as a fact that we must accept.

Drawing the picture

So what have we done?  We have compounded the problem – if we don’t have economic growth in Canada, we won’t have wage growth either. Without these twin pillars of support, the CPP is headed for a more expensive future than the actuaries are predicting.

So when I argue that expanding CPP is putting too many eggs in one basket, just understand that we have just increased our reliance on Canada’s future economic strength to pay government pensions to our future retirees – and if that economic strength isn’t there we will have to decide to place the higher costs on future workers or future retirees.

I am absolutely against making our children and grandchildren pay for bailing out the baby boomers and Gen X that didn’t save enough when working.  So I would feel better if we tell the 40+ crowd now that if the assumptions don’t work out the benefit won’t be there.  But that doesn’t deliver on the promise that the government is making today. So the next best option is to be more conservative in the assumptions that we are making about future economic growth so that we can start paying now for the benefits we hope to enjoy in retirement. If we accidentally create a windfall for a future generation I am ok with that outcome.

Of course the answer that I much prefer is to let individuals do more of the savings and let them reap the rewards or consequences of their actions.

The easy way out for Mr. Poloz and Mr. Morneau is to find a way to create long-term economic growth. I don’t understand macro-economics well enough to tell you how this can be done or which one of them is better positioned to achieve this goal. But if I were them I would be meeting regularly to share the problem and find the solution.



Joe Nunes
Joe Nunes
Joseph Nunes, Co-founder and Executive Chairman of Actuarial Solutions Inc., has practiced in the area of pensions and retiree health plans for over 30 years. He has experience with many types of plans including single-employer, multi-employer, private sector, government, unionized, non-unionized, as well as registered and non-registered executive plans.


  1. Avatar Mike Duggan says:

    Great column – insightful as usual.

    Why do many Canadians feel that they must rely on the government to take care of them in their retirement? What happened to individual accountability? What happened to saving for retirement?

    How do people think that they can live for today and not plan for tomorrow?

    That’s the issue that many Canadians and elected representatives choose to ignore. Of course, government staff and elected representatives have a generous Defined Benefit Pension Plan for their retirement. What about those of us who don’t?


  2. Avatar Patrick Flanagan says:

    Joe, your anti-CPP rants are always interesting, but sadly misguided. You start with a valid point – if we are to have continuing weak economic growth, we should expect low wage growth and low investment returns. This would increase the cost of defined benefit arrangements such as the CPP, but it would also reduce the prospective retirement income from defined contribution arrangements. You are concerned about the former, but not the latter.
    Defined contribution plans are, necessarily, fully funded. The CPP funding methodology is designed to avoid a secular increase in the contribution rate, but it is not full funding. Compared to defined contribution plans, the CPP gets a greater portion of retirement benefits from contributions, and a smaller portion comes from investment income. Thus, the achievement of good investment returns is less critical in the CPP than in fully-funded arrangements. So the greater worry should be the impact of poor investment returns on the unfortunate people who are more dependent on individual savings plans for their retirement income. Will they have to be bailed out by having future taxpayers give them higher (or less clawed back) Old Age pensions and Guaranteed Income supplements?

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