OAS: Young Canadians caught in crossfire as Ottawa ponders revamping retirement system

Riddhi Thaker got the message that she’s supposed to save for retirement.

She heard the message from Ottawa this week that the Old Age Security system will be a financial risk within a decade – and that young people today will need to save more for their golden years.

But here’s the problem. Thaker, a 24-year-old University of Ottawa bio-chemistry graduate is still trying to find a full-time job two years after finishing school.

She has a student loan and two volunteer positions, one at a seniors’ home and another working with children. Thaker expects that she’ll eventually go back to school as she decides on a long-term career.

The future looks daunting.

“It’s worrying. I haven’t even got a job to start saving up,” Thaker said.

Human Resources Minister Diane Finley delivered a clear message to young people during a speech in Ottawa this week: The long-term costs of the Old Age Security program are unsustainable and changes are coming.

“The total cost of benefits will be increasingly unsustainable for tomorrow’s workers and taxpayers,” she warned, though she declined to give details on any changes.

But this is also the generation that is having trouble getting a foot into the workforce as Baby Boomers, out of financial necessity or passion for the job, are working well into their 60s and slow economic growth is keeping a lid on job creation.

Unemployment among young people is running at about 14 per cent in Canada. That’s nearly double the average jobless rate.

While the gap will likely close as the economy picks up steam again, some researchers believe there can be permanent long-term effects. Those who take longer to enter the labour market following a recession having a more difficult time matching jobs to their skills and many end up switching fields. Their earnings are stuck in the slow lane for years.

“It’s difficult with the youth unemployment rate so high for students to find employment. Even when students do find employment down the line they will have mortgage-size debt and no hope of pensions at the end of their working careers. It’s a recipe for economic disaster,” said Sandy Hudson, Ontario chairperson for the Canadian Federation of Students.

“Our members are very concerned for their future.”

Finley’s warning is controversial. Opposition leaders insist the government support system for seniors is sound and that the Conservatives are spending on jet fighters and jails and fear mongering.

“It’s always difficult to disentangle the political agenda, but there is a clear, true signal there,” said Louis Gagnon, finance professor at Queen’s School of Business.

“We do have an issue in this country. The population is aging and this is a demographic trend that is inevitable. There will be a point in time where there will be too few taxpayers to support people in their old age.”

Benjamin Tal, economist with CIBC World Markets, said that Canadians in their early and mid-20s are already well-aware that they face less-than-cushy retirement prospects.

This generation is faced with an unaffordable housing market, particularly in major Canadian cities, and is living at home longer, and postponing marriage.

But they also tend to save more of their income relative to other age groups.

A 2010 study by CIBC World Markets found that Canadians ages 25 to 34 have a higher propensity to contribute to their RRSPs than Canadians ages 45 to 64.

In other words, if they have the means to do so, younger Canadians are more inclined to contribute to their registered retirement savings plans than their older counterparts.

“To me this is a clear indication that young Canadians have a very cynical and skeptical approach to government pension and company pension,” Tal said.

More will be self-employed than work traditional 9-to-5 jobs and they don’t expect the government to be there for them, Tal added.

“They know they need to take care of themselves. Young Canadians are more financially savvy than they get credit for.”

About one-third of Canadians, even in their 40s and 50s say they don’t have an RRSP, said Cynthia Caskey, vice president, portfolio manager at TD Waterhouse Private Investment Advice.

Even young Canadians who are underemployed and working hard to make ends meet can benefit from having a plan to tuck aside a little savings from each paycheque, Caskey said.

“Even a few dollars a week can really add up over the long term,” she said. “Our message is that you want to start. The hardest part is starting.”