The following is a post by staff writer Teacher Man. This is his first post for Invest It Wisely; please join me in welcoming him to the site!
There has recently been a spate of articles on the internet about how jealous people are of public sector “gold-plated pensions” in Canada. I’m fairly certain that my teacher’s pension would fit that bill pretty well. In return for taking a pretty sizable chunk of money off of our cheques every month we get a pretty nice pension we can start receiving at 55 if we so choose (which most teachers do). I recently wrote a pretty thorough argument about why people have no reason to be jealous of my pension, but now I’m actually going to take the next step and say that I wish I could trade places with some of you defined contribution plan-types!
I simply hate the idea that I have to give up so much of my money. I don’t understand how it’s legal for a union to effectively say, “We know how to handle your money better than you do, you have NO CHOICE but to let us handle your pension, oh and we’ll be taking over 3% of your gross income in union dues as well.” Now the funny part is that my particular pension fund (Manitoba Teachers) actually does pretty well in terms of investment results. It trails its benchmark by about .5% over the last ten years, and consequently it is superior to about 95% of mutual funds.
Most pension funds aren’t nearly this well managed, yet it is still inferior to the results I would get if I had the exposure to equities that I should have in my retirement fund at my age, and if I merely invested through low-cost indexes and ETFs. Furthermore, I would save a ton of money on administrative and investment fees that are not shown in the investment return statistics.
All of the comparison about returns is irrelevant to the overall point that MY MONEY is being taken from me by my union without my permission. When you take a step back from the situation it’s easy to see that this should obviously be illegal. It is true that the pension plan I have will be better for the vast majority if people than if they had full control of their own retirement savings, but how does this justify taking the fruits of my labour from me without any choice involved. Shouldn’t we be encouraging people to understand their own personal financial situation and “teaching them to fish” instead of doing it for them? Wouldn’t we all be better off if our retirements were self-sustainable?
Besides the obvious moral issue I have with someone being allowed to steal my money from me on a monthly basis, I also have a couple of specific objections to defined benefit plans in general. The first one is that with so many baby boomers retiring, I have little faith that my contributions will equal what I eventually receive. I’m sure there will be something left in the kitty and that it will be politically spun in order to convince most people that everyone did their best, but I would be much more comfortable with my own money sitting in my own accounts.
The second objection is to the fact that if I am a single person and pass away suddenly, all of MY MONEY that was contributed to the fund just gets dispersed. Most plans have protocols in place to transfer your pension to your partner should you pass away, but there are obvious circumstances where a huge amount of assets that should have been under your control are never given to those whom you would want to have them.
Finally, in this day and age, where most people will go through more careers than they have fingers to count them on, defined benefit plans are much more cumbersome to deal with than a defined contribution plan is. My pension is not transferable to many other jobs, and so if I change positions I know have to worry about two pensions, and the benefits do not accumulate like they would if I was merely able to do what I wanted with the compensation I received for my labour (I know, it is a radical thought).
I want the freedom that comes with making my own investment choices. If others don’t want that freedom and the responsibility that goes with it then I think they should have the option to opt into the current pension plan. I just don’t understand how it’s legal to force me to blindly trust a third party with something as important as my retirement income. Gold-Plated pension fund? Ah, so that’s where my fees go, to pay for the gold plating… now I understand!