The Lessons of Canada Post

Technology has a way of turning today’s roosters into tomorrow’s feather dusters. Paying attention to once seemingly indestructible companies that have fallen over should serve as a reminder to investors that no one company can ever serve their investment needs.

Kodak, Polaroid and Blockbuster Video are well known examples of companies crushed by digital alternatives. And the Fortune 500 list (largest US companies by total revenue) shows the changing nature of business. Only 12% of companies on the list in 1955 remain and back in 1955 you wouldn’t have found an Ebay, Microsoft, Google, Amazon, Netflix, Symantec or Facebook.

Of course this isn’t just restricted to publicly traded companies, government owned businesses around the world are finding themselves battered by technological changes. Canada Post, like our own Australia Post, have a few digital dilemmas to deal with, but they also have a few other issues on their books.

Right now Canada Post workers are threatening a strike over changes to pensions, job security and benefits. Some might say the changes are warranted – the mail business isn’t what it used to be with revenues and mail volumes significantly declining due to email.

However, it’s the pension plan that’s really starting to bite. Many Canada Post workers have a defined benefit pension, with some fortunate enough to be paid 70% of their working salary, indexed from age 55. Not every worker is quite that lucky and in reality it’s the volumes of workers that are more important than a handful of workers claiming the maximum.

In the last five years the number of retirees drawing Canada Post pensions has increased by over 40%. The pension plan is approaching a death cross where the number of members paying in is about to be overtaken by the members drawing money out.

This has happened just as Canada Post has less money to contribute to the pension plan. Less revenue and less mail volume also means fewer employees and fewer employee contributions. Last year the pension plan paid out $880 million while taking in $513 million, it now has an unfunded pension liability of over $6 billion.

Growth at Canada Post doesn’t seem likely to ever happen again, so as a government entity you know who will eventually be on the hook for covering those unfunded pension payments that look like blowing out.

Similar scenarios are going to be a problem around the world and likely here in Australia. Anyone relying on the age pension in the future may be in for a shock. Government reports highlight that the current ratio of four people of working age to one person over 65 will likely halve in 30 years’ time.

To put those figures in perspective, back in the 1970’s there were seven people of working age to every person over 65.

As these demographics begin to affect the budget we can expect pension access to be further crimped and age eligibility ratcheted upward. Like we’ve already seen, if you became a little bundle of joy post January 1 1966, you’ll be waiting till 70 to access a pension (subject to legislation being passed).

Then there are Australian public service liabilities. Taking into account the future fund, the Commonwealth, along with every state and territory, still had unfunded superannuation obligations of $142 billion in 2015.

Inevitably some group relying on the publicly funded pensions will be taking it in the neck.

The best defence in the coming decades will be to pay attention to superannuation and if you’re concerned about political fiddling, build a separate retirement fund outside super.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

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