In the federal election of 1957, the governing Liberals lost to the resurgent Progressive Conservatives, led by John Diefenbaker. One reason for the defeat centred on the Grit promise to raise existing old age pensions by $6 a month.

The Tories coined the term "Six Buck Boys" to describe the Liberals and a policy generally seen as a transparent attempt to buy votes.

In 1957, Progressive Conservative prime minister John Diefenbaker made political gains by griping about Canada's pension plans. (Canadian Press)

At the time, pensioners were facing serious trouble paying for their retirement and saw that the little extra promised each month would only amount to about half the cost of a ticket to the 1957 World Series.

As Canada approaches the one-year anniversary of the worst global economic downturn since the Great Depression, a gain of a couple of bucks for many retirees may sound pretty good these days.

After watching stock markets plummet in the past six months, many Canadians face life after 65 with increased trepidation.

"Canadians have watched their retirement savings disappear before their eyes," said Susan Eng, vice-president of the Canadian Association of Retired Persons, talking to an Ontario government committee in December 2008.

As many pre-retirement baby boomers gaze at the wreckage of their retirement plans and personal savings, they are finding out that what was supposed to be their "golden years" might more closely resemble pyrite, or "fool's gold."

Equity disaster

The reason for the reappearance of nail-biting angst among the future lawn-bowling set is the terrible performance of North American equity markets in the past nine months or so.

Since June 30, 2008, Toronto's S&P/TSX index had tumbled almost 29 per cent to slightly above 10,000 points by June 2009. And that gain actually represented a 27 per cent improvement over the TSX's 52-week low of 8,123 reached on Feb. 27.

Often, the machinations of the stock market are thought to be the purview of savvy investment types, not staid pension managers. In fact, retirement funds represent an investment of more than $300 billion in Canadian and foreign stocks and sport some of the sharpest money experts around.

Unfortunately, even the cleverest of Bay Streeters saw their investing reputation swept away in the stock market carnage of the past year.

Worse still, as the stock market dropped, so did the size of pension assets.

According to Statistics Canada, employee-based pension plans lost 15 per cent of their asset base in the fourth quarter of 2008, compared with the same three-month period a year earlier.

The country's largest public plan, the Canada Pension Plan, saw 14 per cent trimmed from its holdings in 2008, down to $105 billion. The CPP is paid to retiring employees, financed by workers and companies, and is distinct from the monthly Old Age Security pension available to most Canadians aged 65 or older.

The Ontario Municipal Employees Retirement System, which oversees $37 billion in various investments, faced a 15.3 per cent haircut on its asset base.

U.S. pensions endured a similar trashing.

The top 100 pension plans in the United States went from a $111-billion-US surplus, comparing assets to what they paid out in 2007, to a deficit of $198.9 billion 12 months later. That's a turnaround of more than $300 billion.

Only three U.S. plans — those run by General Mills Corp., FedEx Corp. and Prudential Financial Inc. — posted positive returns. All the rest sported red ink.

Stocks stumble, risk rises

North American pension funds — indeed, money vehicles in most industrialized countries — saw their worlds explode for the same reasons that investment portfolios did over the same period.

More than three million Canadian workers have no employer pension plan (Ryan Remiorz/Canadian Press)

Equity valuations dived as economies slowed, hurting profit forecasts. Now, that part of pension plan holdings exposed to the stock market was hit by a hurricane.

The $87-billion Ontario Teachers Pension Plan said its equity business lost 23 per cent in 2008. Teachers outperformed the industry's benchmark loss of 26 per cent, but it was an awful performance nonetheless.

"People got hit in the head with how much risk they were taking," said Dan Morrison, a senior pension consultant with Watson Wyatt, a firm that helps other companies with employee benefits.

"There had been substantial thinking that, as long as you had a diversified portfolio, you got reduced risk. But all the markets got hit at the same time. (The strategy) didn't work," he said.

More troubling, funds had sunk cash in other investments that were designed to reduce their exposure in stock markets. This time around, these holdings also belly-flopped.

Bond holdings, usually thought of as being like cash, were riskier than the managers had realized.

First, pension funds thought something called "asset-backed commercial paper" — backed by residential and commercial mortgage payments — sounded like a nifty investment vehicle and smelled like a bond.

In reality, this type of commercial paper turned out not to be a solid financial instrument as much as a fiscal throw-of-the-dice.

The value of the bonds shrank in 2007 when issue holders could not find any more ABCP financing, even before the Canadian and U.S. economies hit the skids.

Worse still, pension plans figured they could always diversify their holdings by purchasing regular bonds from big-blue chip companies, such as Bank of America, a pretty standard strategy.

Those firms, however, turned out to be financially toxic pools as they wound up holding piles of almost-worthless ABC paper.

Thus, pension funds saw holdings that they believed were solid valued at pennies on the dollar.

Mall mess

Finally, holding U.S. real estate assets, such as shopping malls and office buildings, failed to be a tonic for falling fund valuations.

Defaulting corporations shed office space while retailers found few buyers interested in their latest offerings during the recession.

Thus, many office towers were dotted with empty offices and malls had papered-over storefronts.

One study pegged the malls vacancy rate at a 10-year high by the end of 2008.

Empty shopping malls hurt pension funds' investment results (Simon Gardner/CBC)

All told, what these funds planned as a solid diversification strategy failed to sidestep the 2008-09 economic plunge.

Now, pension funds not only face a shrinking asset base, but also a growing problem in funding their plans.

In 2007, the top Standard & Poor's 500 companies had sufficient financial wherewithal to cover 94 per cent of their outstanding and future cash obligations.

By 2009, these same companies could only cover 72 per cent of their funding needs, worst than the 75 per cent level reached in 2002.

Aging agony

Besides financing issues, pension funds also face worsening demographics among their members.

As the baby boom generation gets sets to retire, the number of people accessing the pension system will grow while the cohort of workers paying into the system will fall.

Australia's situation is comparable to what is happening in many countries.

Mercer, a global provider of consulting, outsourcing and investment services, says the number of Australians in the workforce aged 55 years and over will grow by 12.7 per cent by 2012. That is more than twice as fast as the 5.5 per cent growth in workers between the ages of 25 and 54.

Canada also faces an elder explosion.

Back in 2005, the country's chief actuary reported that 4.1 million Canadians were 65 years of age or older in 2003. That worked out to 12.8 per cent of the population.

By 2030, Jean-Claude Menard estimated, almost 25 per cent of Canadians, or 8.9 million men and women, will be in the retirement category.

A greying workforce means more elderly people will soon be asking the CPP or their company pension plan to start paying what they promised.

"The first Canadian 'boomers' will reach age 65 in 2011, thus marking the beginning of a unique aging trend marked by subsequent waves of retirement which have been the subject of concern about pension funding and health-care policy for well over a decade," according to a 2009 note on Canada's aging population completed by Infrastructure Canada.

Ranging solutions

Pension plans, however, still need to keep their plans solvent, effectively to pay for the retirement of future workers.

"Often, the company's competition is offering something," said Watson Wyatt's Morrison.

The last time the CPP ran into a similar solvency issue — about 10 years ago — Ottawa boosted premiums, a move that annoyed the employed but filled the plan's coffers to a proper level.

This time around, raising what employees and employers pay might not be as easy an answer, partly because recession-weary businesses are sensitive to higher costs.

Even with its current struggle, pensions should continue to exist, experts say. What will change is who gets how much.

The National Union of Provincial Government Employees, which represents 320,000 provincial civil servants, inhabits one side of the solution spectrum. NUPGE has argued Ottawa should expand CPP coverage to include more workers and charge more to those employers who don't provide a private retirement stipend to workers.

"It's unfair that employers who do not provide a pension plan pay the same CPP premiums as employers who do provide a pension plan to their workers," the union in an analysis published in December 2008.

A joint task force of the British Columbia and Alberta has already recommended a less lucrative defined-benefit plan that would include more employers.

Still, private-sector firms appear to be heading in a different direction.

More companies are capping the benefit levels or the maximum age at which retirees get cash. Younger people also likely face a different kind of retirement plan, one in which they will pay a set amount, rather than receive an established benefit.

If governments make rules that hamper a firm's flexibility, both the worker and management will lose, some critics say.

"Today's excessive funding requirements force employers to divert significant cash flow away from capital upgrades, research and development, and basic maintenance in their operations, into pension funding," Len Crispino, president and chief executive of the Ontario Chamber of Commerce, said in a 2007 submission on pension reform in Ontario.

Watson Wyatt's Morrison said you might see firms pulling more and more of their cash out of stock markets as a way to reduce the amount of financial risk they face.

Regardless of what rules governing pensions get shifted or what asset mix gets scrambled, running plain old retirement funds now requires a higher level of economic awareness and adaptation.