Saving for retirement ≠ pension

I recently took the 2014 Ontario Vote Compass test.  I found it was useful for identifying areas where parties' platforms weren't what I expected or their positions relative to each other weren't what I expected.  But one of the questions baffled me.  It asked if I agree or disagree with the statement:

"Ontario should require workers to save more for retirement."

At the end of the Vote Compass test, you can click on a link to see the rationale for the compass allocating each party's position to each issue.  And when I clicked through for this one, it became apparent that the issue they were talking about was the creation of an Ontario pension plan.  By "require workers to save more for requirement", they meant "create a provincial pension plan.

This is gravely misleading!  While saving money for retirement is certainly an important part of a pension plan, the two concepts are certainly not interchangeable.  The big deal about a pension plan is not that you divert money from your income to save for retirement, but that the plan turns this money into a steady source of income for your old age.  

Saving money is simple. Turning your savings into a pension is complex.

Saving money is arithmetic - actually, it's just addition and subtraction (and maybe even just addition depending on how you do the math), with no multiplication or division necessary.  Turning your savings into a pension is...I don't even know what kind of math it is, and I got an A in every math class on my high school's curriculum.

You can tell immediately if you're succeeding at saving money - the balance of your savings account goes up and doesn't go down. You can't tell if you're successfully creating a pension for yourself until it's too late.

Saving money is a diligent personal behaviour.  Turning savings into a pension is an entire profession, requiring its own training and expertise.

To reduce a pension plan to "you should save more money" is like reducing having perfect teeth to "you should brush your teeth."  Yes, the diligent personal behaviour is necessary, but you also need the professional expertise to achieve your goal.

The enormous benefit of having a pension plan instead of doing it yourself is that your pension is managed by expert professionals who are hired by expert professionals, and whose primary mandate is to make the pension plan succeed.  If you hire a financial planner as an individual, you're stuck with just your own non-expert knowledge to determine whether they're competent or a charlatan, and it's quite likely that their primary mandate is to sell specific financial products or have a high number of transactions or pull in new customers, depending on their compensation model.  Finding a skilled and competent financial planner who will work in your own best interests is not necessarily a simple matter for those of us who aren't financial experts ourselves, and we can't necessarily tell if our planner is in fact doing their job properly before it's too late.

With a pension plan, you also have economies of scale, and can mitigate risk by diversifying more than an individual can and by distributing risk over a longer period of time than an individual's personal retirement savings.


I think the Vote Compass test may have landed on this phrasing because one of the parties has nothing in their platform about creating a new or expanding an existing defined-benefit pension plan, and instead uses the phrasing "Give Ontarians the opportunity to save more for their retirement..." by promoting PRPPs. But this does not negate the fact that the other parties' platforms talk about actual defined-benefit pensions, where a given input will guarantee a given output.  This is far more than simply requiring people to engage in diligent behaviour, and the CBC and the Vote Compass people do us a disservice by representing it the way they did.