Unless it’s mandatory, most people can’t or won’t save: Gandalf’s David Herle
March 12, 2020
Much is said and written about the need to get more people to save for retirement, particularly younger folks who typically lack a retirement program at work.
According to David Herle, Principal Partner at research firm The Gandalf Group, and a noted political and retirement commentator, it’s not just younger people who aren’t saving for retirement.
“We know that young people do not think about the end state of their lives,” he tells Save with SPP in a recent telephone interview. “They are focused on their more immediate needs.” Those needs include the cost of education, housing, and consumer debt.
When talk turns to millennials, the Saskatchewan-born Herle points out that their ability to save is hampered by the fact that there are “less jobs, and specifically, less good jobs with pensions and benefits” in today’s “gig economy.”
So not only are young people not saving, neither are old people. No one, he explains, has any extra money kicking around to save for retirement.
Herle says his firm’s research has shown repeatedly that the best way to get people to save is to make it mandatory, with no way to opt out. That way, he says, ensures money is directed to their long-term savings without the individual “having to think about it.”
Otherwise, he notes, getting people to save is challenging. “There’s not a lot of benefit from lecturing people,” he explains.
Asked if there are any public policy options to increase savings, Herle noted one idea from the past that could be revisited – payroll Canada Savings Bond purchases.
In the recent past, you could buy a Canada Savings Bond and pay for it via payroll deductions, a sort of “pay yourself first” option that did encourage some savings. “It might be worth considering bringing it back,” he suggests.
He points to the expansion of the Canada Pension Plan as “the most significant public policy development” in the retirement savings space. Ontario considered bringing in its own pension plan to supplement CPP, but the Ontario Retirement Pension Plan was shelved when CPP expansion got the green light a few years ago, he says.
The other trend he calls “troubling” is the lack of good pension plans in the workplace. For many years most people had a decent pension plan at work, the defined benefit variety which spells out what your retirement income will be. But employers “have started cutting pension plans,” moving to other arrangements, such as group RRSPs or capital accumulation plans where future income is not guaranteed.
He cites the recent labour dispute over pensions involving Co-op Refinery workers in Regina as an example of an employer trying to cut pension benefits for their employees. “If this happens, we could be seeing the end of the line for pensions,” he warns.
“Most people have lost the security of having an employer-sponsored pension plan,” Herle explains. There’s a large chunk of “middle and low-income earners” who are being expected to compensate for the lack of a plan at work with their own private savings.
“Our research found that those aged 55 to 65 – and this is not counting real estate – have more debt than savings. So this is people in the 10-year run-up to retirement,” he says. The lack of savings will force people to use home equity lines of credit, and the “reverse mortgage business is going to take off.”
Debt is restricting the ability to save, and CPP changes “won’t kick in in time for many people.” Herle says he has not heard of any plans to fix the other pillar of the federal retirement system, the taxpayer-funded Old Age Security program. Recent governments have tried to raise the age of entitlement, and a clawback program is already in place to reduce OAS payouts for higher income earners.
The outlook for retirement saving is “a very gloomy picture,” Herle concludes. He blames “a systematic societal failure… where the risk (of retirement investment) has been transferred to employees from employers.”
We thank David Herle for taking the time to speak to Save with SPP, and encourage readers to check out his podcast, The Herle Burly.
It’s true that paying yourself first – directing something to savings and then spending the rest – can work, especially if it is an automatic thing and the money moves before you can spend it. The Saskatchewan Pension Plan has flexible contribution options that include a direct deposit program; you can set it and forget it. SPP also has an option for employers to set up an easily administered pension plan for their employees. Check them out today!
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22|