Introduction

Canadians are blissfully unaware that Canada's economic system is broken, defrauded by the most successful economic organization in history—the public sector union. The truth is, our politicians have been coerced by public sector unions into paying salary and benefits packages far beyond what our economy can support, as well as guaranteeing to pay inflated pensions to those same workers after retirement. As the National Post said, these giant public pension funds are “wealth confiscated by governments . . . using money taxed from all their constituents.”1 Almost every government employee—including elected politicians—will benefit from these pensions, at the expense of the vast majority of Canadians.

The 20 per cent of the workforce that belongs to public sector unions—civil servants, teachers, firefighters, police officers, armed forces personnel, and all government workers, including politicians—have quietly negotiated the most lucrative compensation packages in history. And these will all be paid for with tax dollars—and massive government debt. The CFIB Wage Watch Report2 shows public sector salaries and benefits exceed those of private industry by up to 30 per cent. More troubling is the fact that their guaranteed, indexed-to-inflation pensions are creating two classes of retirees.

This book will open your eyes to one of the greatest reallocations of legal assets in the history of the world. Some call it pension envy, some call it pension apartheid, some call it fraud. We call it a pension Ponzi plan, an unsustainable scheme to funnel money from one group of Canadians to another under the pretense of providing services. Who will be the loser when it collapses, as all Ponzi schemes eventually do? Consider these facts:

Canada's baby boomers, the country's largest demographic group, account for one-third of our adult population and are moving into their retirement, expecting to live for another 30 years. This is a group that has consistently spent money it should have been saving for its future on fun and games today. No savings, small RRSPs, big mortgages, high credit card balances. The promise they believe has been made to them over a lifetime of financial contribution and achievement is that they will enjoy a quality of life in retirement second to none. The unfortunate truth is far different than that promise.

It's true that some baby boomers—those who have toiled in public service—will have pensions unlike any seen before. These gold-plated retirement packages typically guarantee employees 70 per cent of their highest five years of working income, indexed to inflation, until the day they die. But only 20 per cent of working baby boomers belong to this select group. Another 30 per cent of boomers have some form of private industry and/or personal plans in place to augment their government pensions, but nothing close to those of their public sector counterparts. The majority of the other 50 per cent of boomers will risk living in or near poverty, the equity they created in this country drawn off on a yearly basis to fund public service pensions. These disproportionate public service pensions are funded by taxes, which means that supporting them will divert money from every aspect of government-funded programs, including health care, education, infrastructure, the military, and foreign aid, and will ultimately undermine the quality of life of every Canadian.

Private company pension funds are in deficit, the economy will be stagnant for years to come, jobs are going overseas, the health care system is crumbling. Meanwhile, one group of retiring Canadians is set to raid the public treasury for billions of dollars in guaranteed, indexed pensions. How will the other boomers survive their old age? Consider the following illustration to see just how different your retirement may be from your neighbours'.

Which Future Will be Yours?

Mark and Jennifer lived next door to Carl and Marnie for 32 years. They raised their families in comfortable, three-bedroom homes in a suburb just outside of Toronto. All things considered both couples had a pretty great life. They had regular holidays, late model cars, went out to dinner together often, were subscribers to first-run theatre, belonged to the same golf and country club, bought quality clothes, and didn't worry much about the price of food. Both families had two children, and all of them went to university. Mark and Jennifer have four grandchildren, while Carl and Marnie have three.

Carl and Mark were both accountants by trade, earning their certified public accountant designation within a year of each other. Mark got a job in the accounting department of the local municipality and worked his way through the public service, eventually taking a position with the Canada Revenue Agency. Jennifer worked at the library as an assistant librarian. Carl worked as an accountant for a large steel company for 27 years, but was downsized and let go with a two-year-income severance package when he was 54. He was unable to find similar employment and spent his last 10 working years largely self-employed, doing contract work and income tax returns. Marnie worked part-time while the children were young, and then as a secretary at a law office for 24 years. She retired when the senior law partners took early retirement and the younger lawyers chose not to continue her employment. She was 58 at the time.

For the first 20 years or so, the family incomes coming into the two homes were quite similar but then a gap appeared and continued to widen each year. As a government employee, Mark's income was negotiated by the Canadian Union of Public Employees (CUPE) and outpaced inflation, whereas the manufacturing company that Carl worked for had had a very weak decade starting in the late ‘90s. Salaries were frozen for several years and a lot of the perks, such as company car allowances and expense accounts, were cut back.

Jennifer also benefited from steady raises negotiated by her union, whereas Marnie was never very good at asking for more money and consequently received small and erratic increases in pay. After Carl lost his job the difference in the couples' incomes accelerated, and when Marnie was fired her income dropped to zero. It's fair to say that Carl and Marnie were caught unprepared for this turn of events. They had both been hard-working, loyal employees and just assumed that they would work at their respective companies until they were 65.

“I suppose as an accountant you might think that I would have seen it coming,” says Carl, “but after a while you get used to seeing a bad balance sheet and that becomes the new reality. The company had cut a lot of expenses—I had actually helped them decide which ones to cut—and that included downsizing the workforce. I just never thought they would get rid of senior staff.

“We closed down whole sections of the plant and sent jobs overseas to cut back on wages. We delayed replacement of a lot of our older production equipment and cut back on research and development, but it still wasn't enough. At the end of the day our Canadian labour costs were killing us. Our plant workers were all unionized and we had paid top wages for many, many years but once the steel industry went global we just couldn't compete.

“Our health care costs were killing us too. The average age of our employees was much higher than that of our competitors overseas, and our workers were becoming less productive and less healthy. Our health care premiums jumped every year and there was no end in sight for that. When we started to pay out more in pensions than we were paying our active workforce, there wasn't anywhere to turn.”

Once they had absorbed the shock of being fired, Carl and Marnie searched for similar jobs in their fields but were never able to secure permanent positions. They found themselves competing with much younger candidates, usually being interviewed by managers who were much their juniors and had little or no interest in hiring two older workers looking for a short-term bridge to their retirement years. The loss of income caused both Carl and Marnie to stop contributing to their RRSPs, and once they had spent all of Carl's severance money, were forced to draw from their RRSPs well before their 65th birthdays.

Mark and Jennifer, on the other hand, fulfilled the mandates of their employment contracts and were able to retire early with full benefits. Mark retired at 56, having worked 30 years, and Jennifer retired two years later. While they were working, their incomes never stopped increasing. Their incomes weren't affected by the recession in the early ‘80s, the market crash in the late ‘90s, the Silicon Valley bust last decade, or the financial market meltdown in 2008. After his official “retirement” as a full-time employee, Mark took contract work with the agency and continued to work while collecting his pension.

Mark and Jennifer's RRSPs did, of course, suffer fluctuations in value based on the stock market, but they had always considered these RRSPs to be an “add-on” to their government-guaranteed pensions anyway, so the loss was really only a paper one. They didn't need this money to live on, and had no plans to redeem any RRSPs until they were forced by government legislation to do so. They were able to leave their money invested and wait to see if the markets rebounded. Truth is, they were hoping to leave this money to their children and grandchildren, or to cash it in and spend it on their offspring while they were still alive.

It was a shock to the couple when Carl and Marnie informed them that they were selling their house and moving into a small condo in a new subdivision about 50 kilometres away. They had always planned to spend their retirement years as neighbours, continuing to borrow each other's tools, share summer barbecues beside the pool, and grow old together as best friends.

“I felt as if my life were somehow ending and would never be the same again. So many memories came to me,” says Marnie. “That house was my life, it held my family. It's hard to describe if you've never been through it, but it just seemed so un-Canadian to me to be forced out of my house because of money. Carl and I were good people. We worked hard all our lives, we were honest, and we sure paid a tonne of taxes. I just feel like we tried to do everything we were supposed to do and in the end the system just kicked us out like our lives didn't even matter.”

Ten Years Later: Carl and Marnie

The first few years in their new home had not been as difficult as Carl and Marnie feared. There had been a period of adjustment to the smaller rooms, the lack of a backyard, the isolation of not really knowing their neighbours—which was a dramatic change in their day-to-day lives and routines—but they encouraged themselves by pointing out that they still had their health and each other.

Before Carl had been terminated at work, he and Marnie had been overextending their credit like most baby boomers. They had remortgaged their home to access cash for investments and run up credit cards for holidays, a small home theatre room in the basement, a kitchen renovation with beautiful new appliances, and really just living slightly beyond their means. It seems that pretty much every boomer family was living that way in the 1990s and in the first seven or eight years of the new millennium. With both of them unemployed, the couple found it very difficult to pay their bills. They remortgaged their house again to consolidate their loans and hoped that their investments would do well, but when the stock market crashed in 2008 they lost half of their equity. When they finally sold their house, paid off their short-term debts, and reinvested in their condo they had nothing left from their lifetime savings, investments, or RRSPs.

After 10 years in the condo, most of the couple's furniture had become worn and had to be replaced. They had to buy another used car when their old one became unreliable. They had initially tried to continue their previous lifestyle as best they could, taking an annual holiday in the south, renewing their theatre subscription, playing golf. They rationalized that they would not live forever and that their health might start to diminish, so they might as well spend the money while they were able to enjoy it, but now in their early 70s, Carl and Marnie were beginning to realize that they could no longer maintain their lives at this level. Their nest egg was gone; they had maxed out their credit cards and used a $50,000 line of credit on their home.

Carl and Marnie qualified for almost the maximum Canada pension and old-age security payments, but with property taxes going up every year, the price of gas, food, and utilities, and more money being spent for health-related expenses that were not covered by Canada's universal health system (chiropractic adjustments, orthotics, glasses, dental visits), there was nothing left over at the end of the month for luxury items, and even staples were becoming more and more difficult to afford. They began to buy lower-quality meats, store-brand products, and damaged produce, and became the “coupon clippers” they had made fun of before.

The couple found themselves seeing less and less of Mark and Jennifer. Their inability to cover their share of meals, theatre tickets, and other entertainment costs made them feel that they were taking advantage of their friends when they went out together. Much as they tried to stay positive about their lives it became impossible not to feel somewhat jealous of Mark and Jennifer, and eventually that jealousy began to turn into resentment. Carl and Marnie felt they had both contributed so much to their community, and yet their reward was so meagre compared to that of their friends.

Ten Years Later: Mark and Jennifer

Mark and Jennifer's life as seniors turned out to be everything they could have ever imagined, and probably more. They kept their family house and it was a great joy to them to be able to have their children and grandchildren come and stay with them on a regular basis throughout the year. The summers were especially wonderful, and the whole family enjoyed lounging around the big pool in the backyard and frequent barbecues, complete with steak, chicken, fresh fruit, and fine wines.

When Carl and Marnie hit hard times, Mark and Jennifer took this as a warning and paid off their mortgage and credit card debts before they retired. With two government pensions bringing in 70 per cent of their previous working incomes and reduced expenses, they had money left over every month. Each year they planned a special event or major purchase that increased their enjoyment of life. One year they took all their grandchildren to Disney World. Another year they rented three luxury cottages in Muskoka for two weeks and took their entire family on holiday. It was a summer of memories which they would never forget.

“I think we'd have to say that for us, Canada is the best country in the world,” says Jennifer. “I guess we were just lucky to have picked careers in government jobs. I can't say we really planned it that way, it just kind of happened. When we started in our jobs they weren't particularly high paid, and neither of us were thinking too much about pensions anyway since we were so young, but our unions did a great job for us and we're just so very grateful for it, especially when you look at what happened to Carl and Marnie.”

Mark had always had a passion for vehicles of all kinds and bought himself a high-end, European convertible sports car for the summers. Jennifer preferred a larger vehicle—safer, she called it—and leased a new SUV every four years. They invested in a number of vacation property programs and typically spent between six and eight weeks of the winter in Florida or the Caribbean islands.

For Jennifer's 65th birthday Mark surprised her with a three-week trip to Europe, something she had always wanted. They spent a week in London, a week in Paris, and several days touring Italy. So, all in all, they would be the first to admit that their lives just seemed to get better and better, and that their retirement years truly were the golden years of their lives.

Carl and Marnie's story is not unique. Some 70 per cent of Canadians will have this or much, much less to look forward to when they retire. Carl and Marnie were fortunate to have maintained enough equity in their home to purchase the condo and supplement their pension income into their 70s.

Jennifer and Mark's situation is also not unusual in the sense that some 20 per cent of Canadians are looking forward to a retirement fully funded by your taxes. Perhaps the question is not how did this happen, but why did this happen? And second to that, is this a fair result in a fair society? Do we believe that Jennifer's work organizing books in a library was more important than Marnie's work helping people deal with their legal issues?

Does Mark deserve a better retirement than Carl because he handled government money, whereas Carl spent his life helping to manage a company that provided jobs for thousands of employees? Who makes these value judgments? Anyone? Who designed this economic system? Anyone, or did it just evolve organically? What will happen to our country when 5 million voting baby boomers discover this inequity in the pension system? What will happen when the next generation of Canadians realizes that the prosperity of their families is being undermined by the billions of dollars being paid to retired public sector workers?

If you are one of the lucky few expecting this kind of guaranteed pension-for-life, we suggest you keep your fingers crossed. The chances that our government will be able to withstand the fury of millions of seniors living near the poverty level—and the anger of millions of working Canadians whose taxes are being redirected into your pockets to allow you to benefit from the wanton and reckless spending of the previous governments you elected—is slim, to say the least.

You might well ask how governments could have let this happen. How did becoming a teacher, a police officer, a public works truck driver, or a municipal office secretary become so much more important to Canada's welfare than being a lawyer, a plumber, a steelworker, or the owner of one of the many thousands of small businesses that are the backbone of Canada's economy? This book will expose the startling truth about our future, show you how we got into this mess, and offer advice about what you can do (if anything) to put yourself on the right side of this life-altering trend.