I apologise for the long hiatus. There were topics that readers might have been interested in such as the ramifications of joint ownership, the role of an executor, but nothing to write a proper blog post.
Financial independence in retirement is essential. This blog post stemmed from a conversation I had with a young couple, parents of a 1 year old and another on the way. The mother is a public sector employee, who will take a 1 year maternity leave. I was very surprised when she told me that her pensionable service commitment had to be paid in advance in one lump sum before she began her maternity leave. This was due to administrative logistics. The amount was thousands of dollars. We did discuss what would be a proper course of action, but we did not arrive at a satisfactory conclusion.
I have private sector clients whose companies will continue to pay their pension benefits while they are on maternity leave. It is understandable that the employer would want the employee to continue to pay into the pension plan but to ask for a year’s commitment all at once puts the employee in a tough spot.
Then I read this article that got me really annoyed.
But first some background information.
An annuity is a cousin of the pension benefit. The way it works is you give a big amount of money to an insurance company and in return you get a predictable monthly income for a guaranteed period of time. The retirees who would benefit the most from annuities would be those who want security and are aiming to become centenarians. Retirees in poor health or who don’t like to be locked into certain monthly amounts that cannot be changed should avoid these.
It is a little known fact that females who purchase annuities with the same initial deposit and at the same age as men do not get the same monthly amount. A woman who purchases an annuity at age 65 will get $474, a man of the same age will get $519. If they both wait until 71 to purchase their annuity the woman will get $548 the man $603. Being the data geek that I am I went and worked out that if both those 71 year olds lived to 85 what each in effect paid to get that predictable monthly income. The man comes out ahead, at $101,304. The woman actually paid over $8000 because she would get only $92,064.
When questioned about this insurance companies trot out the usual statistics that women usually out live men and therefore since they live longer it costs the company more. But consider that the Canada Pension Plan benefits are determined by age and contributions to the plan through time in the workforce. Private pensions are prohibited by law to not base their benefits on gender.
There should be no distinctions between women’s and men’s dollars. The European Union agrees, and 5 years ago outlawed discrimination based on gender for annuity pricing. Canada needs to follow suit.
I would be the first to say that being a mother is one of the most satisfying roles in life. But women are certainly punished financially for the time they take away from the workforce to raise their children. It seems unfair to put them on unequal footing in their golden years.
(1) The Globe and Mail, Elizabeth Shilton May 18, 2016