Will your pension be there when you need it?

March 26 2008 by Ellen Roseman

You work all your life and pay income taxes, as well as contributing to Canada Pension Plan and Employment Insurance. So what do you get when you retire?

Some people are furious to find their income from government plans adds up to only $12,000 a year. They can’t live on that, so they have to keep working if they can. Not always easy.

And what about the workplace pension plan? You can rely on it for decent lifetime support under certain conditions:

–You have long years of service with the same employer.
–You have a defined benefit plan with automatic inflation protection.
–Your employer does not go out of business or merge with another.
–Your employer doesn’t switch in midstream to a defined contribution plan.

Under a defined contribution plan or group RRSP, employees have the responsibility to invest and manage their savings properly, while on the job and later in retirement. Is this fair?

Employees may have limited experience as investors. They may be given a limited selection of investments with high costs. And if they’re not forced to join the plan, they may just stay out altogether.

Here’s some of the input I got from Star readers on pensions and retirement income.

How do you rate on the misery index?

March 24 2008 by Ellen Roseman

Economists have a measure, called the misery index, that represents the unemployment rate and the inflation rate added together. If prices go up at the same time as the economy and job growth stagnate, the average consumer feels miserable.

Livio di Matteo, an economics professor at Lakehead University in Thunder Bay, wrote an article in the Winnpeg Free Press (March 8), showing the misery index under various Canadian governments. He added the Bank of Canada’s prime interest rate to come up with a “tri-misery index.”

The results are intriguing, he says. No political party has a monopoly on misery.

The best period turns out to be that of John Diefenbaker (1957-63) when the interest rate, unemployment rate and inflation rate sum to an annual average total of 12 percentage points.

Next follows the current Harper period and the Pearson era (1963-68), which are tied at a total of 13.

After that comes the Chretien-Martin era (1993-2006), which had low interest rates and low inflation but higher annual unemployment rates that came together for an annual average total of 15 percentage points.

Next comes the first Trudeau era (1968-1979), which saw the average annual value of misery rise to 21 percentage points as higher inflation, unemployment and interest rates in an environment of stagflation took hold.

The first Trudeau era was slightly superior in performance to the Mulroney era (1984-1993), which saw an average annual misery value of 22, which in turn was better than the second Trudeau period (1980-84), which also coincided with a major recession and saw the misery index at 30 points.

And what constitutes the most miserable period in recent economic history? The two years spanned by the short-lived Clark government (1979-80) — which incidentally could also be termed the Trudeau interregnum — was the most miserable economic time with an average Tri-Misery measure of 32 percentage points.

So, the misery index is at a low level right now. But things are at a turning point. The U.S. economy is going into recession and Canada could follow suit. And who knows what will happen to inflation if the current commodity boom keeps up?

Is there a misery index for consumers relating to the pain you feel when companies overcharge and overbill you, keep you waiting for a response, then ignore your complaint and treat you as a non-person? If so, I think the misery index is going up.

Just browse through a few of the emails I got this past weekend to see how miserable these readers are feeling.

The end of customer service

March 18 2008 by Ellen Roseman

I happen to like scanning my own groceries, but I always feel like a traitor to the team. Will supermarkets eliminate human help as gas stations did? It seems like a dangerous trend to make customers do a cashier’s work and not pay them for it.

There’s a cover story in the latest Time magazine on 10 ideas that are changing the world. The end of customer service is on the list. “With self-serve technology, you’ll never have to see a clerk again,” the article says.

Companies love self-service for the money it saves. But why do consumers play along? Maybe the service we get is so minimal that we figure we might as well do it ourselves. Or maybe we’re in such a hurry that we can’t stand lining up.

I’d argue that the self-check-in kiosks at airports have actually improved our travel experience by cutting the waiting time. So have the self-serve screens at movie theatres.

Time cites a British experiment with machines that let customers not only buy merchandise on their own but also return it. There’s a chain of sushi restaurants in Malaysia with order screens linked to the kitchen — so much for waitresses. And a U.S. hospital will soon use check-in kiosks for emergency room visits. Simply touch the image of the human body where it hurts.

By adding all these new tasks to our daily routine, are we overstressing ourselves and reducing our quality of life? It’s an interesting debate. Just don’t expect to have it with a clerk.

This follows an earlier cover story in Businessweek magazine about consumer vigilantes. These frustrated folks use the Web and YouTube to get companies to respond to their anguished complaints.

Take Bob Garfield, a National Public Radio host, who set up the Comcast Must Die website. After repeated delays with his own cable TV service, Garfield suggested that customers post their account numbers on the blog. Dozens of customers followed his suggestion and many said Comcast called them back shortly after they posted their account numbers and rants. (This sounds like what I’m doing with Bloomex complaints here.)

There are also websites like The Consumerist that publish secret phone numbers and email addresses for executives that respond to high-profile customers and media personalities. Many companies are reluctant to talk about their executive customer service — or even to tell people that it exists. But The Consumerist does it here for Fedex and here for Microsoft.

If you’re at loggerheads with a big company, chances are I have a contact or can find one for you. So keep those complaints coming.

Do we need up-front tax deductions for RESPs?

March 11 2008 by Ellen Roseman

Of course, Dan McTeague’s private member’s bill is popular with average Canadian families. They pay a lot of tax and like the idea of getting tax deductions for worthy causes, such as sending their kids for post-secondary education.

The problem is: Does such as idea make sense? Is it good tax policy? And most important, will it help low-income students who wouldn’t normally go to college or university?

After I wrote my Sunday column on this topic, and got trounced by many readers, I thought of a few points I didn’t make.

What happens when parents can’t keep contributing to an RESP for 18 to 20 years? Sometimes, you’re faced with marriage breakup, illness or job loss and you have to deplete the savings earmarked for education. If there’s an up-front tax deduction, then the original contributions plus any accrued return would be taxed at the time of withdrawal. This would result in a very large tax bite, not what you want when you’re already in a financial crisis.

What about the student’s tax position? Normally, they pay no taxes on the RESP proceeds because only the investment gains are added to their taxable income. With the new plan, they would have to pay on all the money withdrawn. Again, that’s counter-productive.

Don Drummond, a TD Bank economist and former finance department official, put out a report today, suggesting it was time to rethink how governments provide financial assistance for post-secondary education.

In his view, tax deductions favour those with higher incomes. That’s because the value of the deduction rises as you move up the income tax brackets. So, it’s wonky to think this will favour income redistribution.

“If improving access to education of children of low-income families is the goal, then we are not on the right path,” he said.

Maybe the RESP no longer makes sense now that the tax-free savings account has been introduced. The TFSA offers many of the advantages of RESPs with fewer restrictions.

Since McTeague’s bill offers lucrative tax deferral — and we know Canadians are likely to take advantage of the proposed new scheme — the extra cost would be $2 billion a year if tax deductions for RESPs were allowed, says Drummond. That’s double the estimate of the finance department. For that massive amount going into post-secondary education, it’s important to ensure the best bang for the buck.

QuickTax pulls a quick one

March 10 2008 by Ellen Roseman

Downsizing is something you see often when it comes to packages of cereal or detergent. But it’s less common with software.

That’s why you might be surprised to buy QuickTax Standard for the 2007 tax year and find you could do only two returns for income over $25,000. Last year, you could do six returns. The price stayed the same, but you could apply for a $10 mail rebate if you filed your return electronically.

After I did a column last Saturday on Intuit Canada’s sneaky move, I heard from many people who had quit QuickTax and found alternative tax software.

Canadian Capitalist also has lots of comment has his blog, where readers talk about Ufile and StudioTax.

Set my pension free

March 4 2008 by Ellen Roseman

“Please release me,” was the cry I heard from many locked-in pensioners after my column ran last Sunday.

CARP is running a campaign to unlock pension savings 100 per cent in Ontario, as Saskatchewan has done. (Remember that Saskatchewan was the driver behind a national medicare plan.) Only when they hear from citizens, supported by expert testimony, do politicians really push to get laws changed.

I only heard from one dissenter. His comments and others are shown below.

By the way, here’s information about an interesting event taking place tonight:

EVENT: Gail Vaz-Oxlade Teleseminar, March 4, 8 PM EST, 1 hour, www.CMASeminar.com (this will redirect you) or call 724-444-7444 Call ID: 13373#
We have room for 250 people, so all are welcome: Monty Loree – Founder
www.canadian-money-advisor.ca