Tag Archives: Quebec Pension Plan

Is there benefit to retiring later?

Would people be better off if they worked a little longer, and collected their retirement benefits a little later?

A new study from the Canadian Institute of Actuaries (CIA) called Retire Later for Greater Benefits explores this idea, and proposes a number of changes, including moving the “target eligibility age” for the Canada Pension Plan and Quebec Pension Plan to 67 from 65, while moving the earliest age for receiving these benefits from 60 to 62. As well, the CIA’s research recommends that the latest date for starting these benefits move from 70 to 75.

Old Age Security (OAS) would see its target age move to 67 from 65. For registered pension plans (RPPs), the CIA similarly recommends moving the target retirement age to 67 from 65, and the latest retirement date to 75 from 71.

Why make such changes? An infographic from the CIA notes that we are living longer – a 65-year-old man in 2016 can expect to live for 19.9 years, while a woman can expect 22.5 more years of living. This is an approximately six-year improvement versus 1966.

So we are living longer, the study notes, but face challenges, such as “continuing low interest rates, rising retirement costs, the erosion of private pensions and labour force shortages.”

Save with SPP reached out to the CIA President John Dark via email to ask a few questions about these ideas.

Is, we asked, a goal of this proposal to save the government money on benefits? Dark says no, the aim “is not about lowering costs to the government. The programs as they are currently formulated are sustainable for at least 40 to 75 years, and we believe this proposal will have minimal if any implications on the government’s costs.

“We are suggesting using the current increments available in the CPP/QPP and OAS to increase the benefits at the later age.” On the idea of government savings, Dark notes that while CPP/QPP are paid for by employers and employees, OAS is paid directly through government revenue.

Our next question was about employment – if full government pension benefits begin later, could there be an impact on employment opportunities for younger people, as older folks work longer, say until age 75?

“We’re not recommending 75 as the normal retirement age,” explains Dark. “We are recommending that over a phase-in period of about 10 years we move from a system where people think of ‘normal’ retirement age as 65 to one where 67 (with higher benefits) is the norm.

“The lifting of the end limit from 71 to 75 is at the back end; there are currently those who continue to work past normal retirement and can continue to do so even later if they choose,” he explains. “Current legislation forces retirees to start taking money out of RRSPs and RPPs at age 71 – we think this should increase to 75 to support the increasing number of Canadians who are working longer.”

As for the idea of younger workers being blocked from employment opportunities, Dark says “if we had a very static workforce this might as you suggest cause a bit of blockage for new entrants, but as we say in the paper, Canada has the opposite problem.

“Many areas are having a difficult time finding workers,” he explains, adding that “in the very near future a great many baby boomers will begin to retire. We think allowing people who want to remain in the work force can help with that.

“It’s important to remember that if you have planned retirement at 65 this proposal won’t prevent you from doing that except that OAS wouldn’t be available until 67 instead of 65 (and we expect the government would explore other options for supporting vulnerable populations who need OAS-type support at earlier ages).” Dark explains.

Would starting benefits later mean a bigger lifetime benefit, and could it help with the finnicky problem of “decumulation,” where retirement savings are turned into an income stream?

“Under our proposal,” Dark explains, “people could work just a little longer and get higher benefits for life. By itself that doesn’t make decumulation any less tricky – but perhaps a little more secure.

“For many people in defined contribution (DC) plans who have no inflation protection, longevity guarantees, or investment performance guarantees from an employer, using your own funds earlier and leaving the start of CPP and OAS to as late as possible can help provide some of the best protection against inflation for at least part of your retirement income,” he adds. And, he notes, because you waited, you will get a bigger benefit than you would have got at 65.

Finally, we asked if having a longer runway to retirement age might help Canadians save more for their golden years.

“Clearly by having a longer period of work you have more opportunity to accumulate funds, and by providing more security of retirement income it will help as well,” Dark notes. “We also know that Canadians are already starting their careers later in life – getting established in their 30s rather than their 20s, for example – and need that longer runway anyway.

“Overall, to me the most important word in the report is `nudge.’ If we can get people to think about retirement sooner and get governments to act on a number of areas that we and others have outlined we hope to improve retirement security for Canadians. This is just the start of a journey that will have lots of chapters.”

We thank John Dark, as well as Sandra Caya, CIA’s Associate Director, Communications and Public Affairs, for taking the time to speak with Save with SPP. Some additional research of the CIA’s can be found on Global News Radio, BNN Bloomberg and the Globe and Mail.

Even if the runway towards retirement age is lengthened, it’s never too early to start saving for retirement. If you don’t have a workplace pension plan, or do but want to augment it, the Saskatchewan Pension Plan may be a vehicle whose tires you should consider kicking. It’s an open DC plan with a good track record of low-cost investment success, and many options at retirement for converting your savings to a lifetime income stream.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Apr 29: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

Should 67 become the new 65?

While many of us were brought up expecting Freedom 55, a new report by the Canadian Institute of Actuaries suggests we might all enjoy things better if it was Freedom 67.

The report, featured in Benefits Canada points out that since Canadians are working longer and therefore, retiring later, government benefits should be pushed out farther into the future.

“Canadians are living longer than ever, and many are choosing to work beyond age 65,” John Dark, president of the CIA, states in the article. “It makes sense to update our country’s retirement income programs to reflect this fact.”

Save with SPP interviewed Dark about the research, you can find that story here.

The article notes that men now live nearly 19.9 years after age 65 on average, and women, 22.5. This longer life expectancy, coupled with people working longer, is the reason given for considering system changes, the article states.

The changes the CIA suggests are moving CPP/QPP and OAS “full” benefits from age 65 to 67. The earliest you could get benefits would move from 60 to 62, and the latest from 70 to 75, the article notes.

“In addition to the financial benefit of receiving higher lifetime retirement income, our proposal provides financial protection for retirees against the cost of living longer and the significant erosion of savings from the effects of inflation,” states Jacques Tremblay, a fellow of the CIA, in the article.

Moving the age of benefits has been tried before. There are important considerations to take into account. First, are people working longer because they want to, or because they can’t afford to retire? Moving the goalpost on those benefits may not help people in that boat.

And secondly, we can’t assume that everyone is healthy enough to work past 65 and into their 70s. It will be interesting to see if the CIA’s recommendations are heeded by government.

Retirement’s value outweighs all financial concerns

Many authors have noted that the value of actually being retired outweighs most financial concerns about getting there.

From the Wow4U blog here are some great quotes about retirement.

“We work all our lives so we can retire – so we can do what we want with our time – and the way we define or spend our time defines who we are and what we value.” Bruce Linton

“The joy of retirement comes in those everyday pursuits that embrace the joy of life; to experience daily the freedom to invest one’s life-long knowledge for the betterment of others; and, to allocate time to pursuits that only received, in years of working, a fleeting moment.” Byron Pulsife

“Retirement life is different because there is no set routine. You are able to let the day unfold as it should. Enjoy, be happy and live each day.” Suzanne Steel

Whatever happens, if anything, to government benefits, it’s a wise idea to put money away for your own future retired self. The Saskatchewan Pension Plan offers great flexibility, professional investing, and a variety of options for retirement, whether you plan to start it early or late.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Feb 11: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

When it comes to retirement saving, how much is “enough?”

There’s no question about it – saving for retirement is a moving target. We are frequently told to save more for retirement, but it’s not often anyone lets us in on the secret of how much “enough” is, retirement-wise.

A new poll by Ipsos, conducted for RBC and reported on in the Montreal Gazette, gives us some specific answers to this age-old question.

On average for Canada, the article says, the savings target is $787,000. The article says Ontarians feel they need $872,000. In BC, respondents think retirement savings should top $1.05 million, the highest total in the country. In Quebec, which has the lowest average, the target is $427,000 to “have a comfortable financial future,” the article reports.

Save with SPP reminds those reading these daunting numbers that all working Canadians will get Canada Pension Plan or Quebec Pension Plan benefits, plus other government benefits like Old Age Security and, if applicable, the Guaranteed Income Supplement. So those will account for a significant chunk of that total savings amount, even though you don’t get these benefits as a lump sum, but as a lifetime payment.

However, those without a pension plan at work will have to do some saving to get to these average totals. The survey asked people how confident they were about reaching the finish line on savings. On average, just 16 per cent said they were confident. An alarming 32 per cent of Ontarians (least confident) and 39 per cent of Quebecers said they “will never build up enough of a nest egg,” the article says. The article says the lack of a financial plan may be part of the problem here.

“The survey… found 53 per cent of respondents from Quebec had no financial plan. Only Atlantic Canada had a higher rate of respondents with no plan, at 54 per cent. Of the 47 per cent of respondents who have a financial plan, 34 per cent said that plan is in their head,” the article notes.

“Across the country, 54 per cent of respondents said they have a financial plan,” the Gazette reports.

If there’s a takeaway here, it is that if you can – despite the rising cost of household debt and other life costs that get in the way – you need to plan to put a little away for retirement. If you start small you can increase your commitment later when the bills calm down.

A little effort today will pay off handsomely in the future, when your savings will turn into retirement income, and you’ll theoretically have paid off debts, raised your kids, and downsized so that you can enjoy your extra time. Don’t be intimidated by the multi-hundred-thousand dollar-targets – a little bit here and there will get the job done. And if you’re looking for an excellent home for your hard-earned savings dollars, look no further than the Saskatchewan Pension Plan.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Feb 4: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

Just six per cent of Canucks plan to save for retirement in 2019

A mere six per cent of Canadians intend to make retirement saving a top financial priority in 2019, according to research from CIBC published in Benefits Canada.

The reason? They’re swamped with debt, the magazine notes. Paying down debt was the top priority in the research, followed by “keeping up with bills and getting by, growing wealth, and saving for a vacation,” the magazine reports.

CIBC’s Jamie Golombek, who was interviewed by Save with SPP last year,  says debt can be a useful tool, but if you are using it for day-to-day expenses, “it may be time for cash-flow planning instead.”

Golombek, who is Managing Director of Financial Planning and Advice at CIBC, says despite the fact that paying down debt is a legitimate priority in any financial plan, retirement savings can’t be totally overlooked.

“It boils down to trade-offs, and balancing your priorities both now and down the road. The idea of being debt-free may help you sleep better at night, but it may cost you more in the long run when you consider the missed savings and tax sheltered growth,” he states in the article.

Obviously, paying off debts in the short-term does feel more like an imperative than saving for the future. After all, the telephone company and the credit card folks will certainly let you know if you’re late with a payment with helpful, blunt little emails and terse phone messages. No such calls come from your retirement savings team.

But even if retirement savings isn’t a squeaky wheel today, you’ll depend on it one day. A Globe and Mail article from a couple of years ago noted that half of Canadians, then aged 55 to 64, did not have a workplace pension plan, and of that group, “less than 20 per cent of middle-income families have saved enough to adequately supplement government benefits and the Canada/Quebec Pension Plan.” The Globe story cited research from the Broadbent Institute.

Government pensions won’t usually replace all of your workplace salary, so if you don’t have a pension at work, you really need to find a way to save. An excellent choice is the Saskatchewan Pension Plan, where you can start small and build your savings over time. You can set up automatic deposits, a “set it and forget it” approach. All money saved by the SPP is invested, and when it’s time for you to start drawing down your savings, they have an abundance of annuity options to produce a lifetime income stream for you.

Be a six per center, and make retirement savings a priority in 2019!

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Part 1: What you need to know about CPP disability benefits

Employed and self-employed Canadians must pay into the Canada Pension Plan or Quebec Pension Plan* throughout their working career. The standard age for beginning to receive your CPP retirement pension is the month after your 65th birthday. However, you can take a reduced pension as early as age 60 or begin receiving an increased pension after age 65.

But many people do not realize that if they are under age 65 and become disabled, they may be eligible for taxable monthly CPP disability benefits.

Eligibility
To qualify for a disability benefit under the Canada Pension Plan (CPP), a disability must be both “severe” and “prolonged”, and it must prevent you from being able to work at any job on a regular basis.

  • Severe means that you have a mental or physical disability that regularly stops you from doing any type of substantially gainful work.
  • Prolonged means that your disability is long-term and of indefinite duration or is likely to result in death.

Both the “severe” and “prolonged” criteria must be met simultaneously at the time of application. There is no common definition of “disability” in Canada. Even if you qualify for a disability benefit under other government programs or from private insurers, you may not necessarily qualify for a CPP disability benefit. Medical adjudicators will determine, based on your application and supporting documentation, whether your disability is both severe and prolonged.

Benefit levels
For 2017, the average monthly CPP disability benefit for new beneficiaries is $952.51 and the maximum monthly amount is $1,313.66. If you are receiving a CPP disability benefit, your dependent children may also be eligible for a children’s benefit. In 2017, the flat monthly rate your child can receive is $241.02.

If you are aged 60 to 64 and you think you might qualify for a CPP disability benefit, you may also want to apply for a CPP retirement pension. While you cannot receive both at the same time, you may qualify to begin receiving a retirement pension while you wait for your CPP disability benefit application to be assessed, which usually takes longer.

If you are already receiving a CPP retirement pension when your application for a disability benefit is approved, Service Canada will switch your retirement pension to a disability benefit if:

  • You are still under the age of 65.
  • You were deemed to be disabled, as defined by the CPP legislation, before the effective date of your retirement.
  • You have been receiving your CPP retirement pension for less than 15 months at the time you applied for your disability benefit; and
  • You meet the minimum contributory requirements.

Should your disability benefit be approved, you must pay back the retirement pension payments you received. According to Service Canada, the retirement pension payments are normally from your first disability payments.

Waiting period
It takes approximately four months for a decision to be made from the date your application and all the necessary documents is received. See how disability benefit applications are assessed. A Service Canada representative will call you to explain how your application will be processed, the type of information required and answer any questions.

Medical adjudicators may also ask for additional information or ask you to see another doctor who will evaluate your medical condition. How long it takes for them to receive the requested information will impact the time it takes for your application to be processed.

If you are eligible under the terms of the Canada Pension Plan (CPP) legislation, your disability benefits will start the fourth month after the month you are determined to be disabled. You may receive up to a maximum of 12 months of retroactive payments from the date your application was received.

While on CPP disability benefits
Without having any effect on your CPP disability benefit, you can:

  • Do volunteer work
  • Go back to school to upgrade or complete a degree, or
  • Take a re-training program.

You can earn up to a certain amount without telling Service Canada and without losing your benefits. For 2017, this amount is $5,500 (before taxes). This amount may increase in future years. If you earn more than the amount allowed, you must contact Canada Pension Plan.

Your CPP disability benefit may stop if:

  • You are capable of working on a regular basis.
  • You are no longer disabled.
  • You turn 65 (it will automatically be changed to a CPP retirement pension)
  • You die (it is important that someone notify Service Canada about your death to avoid overpayment).

What if my claim is refused?
If your claim is refused there is a reconsideration and appeal process. (See Part 2 in this series).

*This article focuses only on CPP disability benefits and does not further explore similar disability benefits available under the QPP.

 

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Should the age of CPP/OAS eligibility be raised?

Results from the 2016 census show that there are now 5.9 million Canadian seniors, compared to 5.8 million Canadians age 14 and under. This is due to the historic increase in the number of people over 65 — a jump of 20% since 2011 and a significantly greater increase than the five percent growth experienced by the population as a whole. This rapid pace of aging carries profound implications for everything from pension plans to health care, the labour market and social services.

“The reason is basically that the population has been aging in Canada for a number of years now and the fertility level is fairly low, below replacement levels,” Andre Lebel, a demographer with Statistics Canada told Global News. Lebel also projects that because over the next 16 years, the rest of the baby boom will become senior citizens, the proportion of seniors will rise to 23 per cent.

Therefore, it is not surprising that a new study from the C.D. Howe Institute proposes that the age of eligibility (AOE) for CPP/QPP, Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits should be re-visited. The AOE is the earliest age at which an individual is permitted to receive a full (unreduced) pension from the government.

Other countries with aging populations are raising the AOE for social security benefits. These include Finland, Sweden, Norway, Poland and the United Kingdom. In 2012, then Prime Minister Steven Harper announced plans to increase the AOE for OAS and GIS from 65 to 67 between 2023 and 2029. However, Trudeau reversed this very unpopular legislation (leaving the AOE at 65) in the 2016 budget.

In their report Greener Pastures: Resetting the age of eligibility for Social Security based on actuarial science, authors Robert Brown and Shantel Aris say their goal is to introduce an “evidence-based” analysis that can be used impartially to adjust the AOE for Canada’s social security system based on actuarial logic, not political whims.

However, they do not argue that current systems and reform plans are unsustainable. In fact, increasing life expectancy and increasing aged-dependency ratios are consistent with the assumptions behind CPP/QPP actuarial valuations. However, they suggest that if there are relatively painless ways to manage increasing costs to the programs, then they are worthy of public debate.

Their calculations assume that Canadians will spend up to 34% of their life in retirement, resulting in recommendations for a new AOE of 66 (phased-in beginning in 2013 and achieved by 2025) that would then be constant until 2048 when the AOE would shift to age 67 over two years.

Brown and Avis believe these shifts would soften the rate of increase in the Old Age Dependency Ratio, bring lower OAS/GIS costs and lower required contribution rates for the CPP (both in tier 1 and the new tier 2). This, in turn, would result in equity in financing retirement across generations and a higher probability of sustainability of these systems.

However they do acknowledge that there are some important issues that would arise if the proposed AOE framework is adopted. One of these issues is the fact that raising the AOE is regressive. For example, if your life expectancy at retirement is five years, and the AOE is raised by one year, then that is a 20% loss in benefits. If your life expectancy at retirement is 20 years, then the one year shift in the AOE is only a five percent benefit reduction.

People with higher income and wealth tend to live longer, so the impact of raising the AOE will be greater on lower-income workers than on higher-income workers. Access to social assistance benefits would be needed to mitigate this loss. The study suggests that it would be easy to mitigate the small regressive element in the shift of AOS by reforming the OAS/GIS clawback as the AOE starts to rise.

The report concludes that having partial immunization of the OAS/GIS and CPP/QPP from increases in life expectancy is  and logical and would help Canada to achieve five attractive goals with respect to our social security system:

  • Increase the probability of it’s sustainability.
  • Increase the credibility of this sustainability with the Canadian public.
  • Enhance inter-generational equity.
  • Lower the overall costs of social security; and
  • Create a nudge for workers to stay in the labour force for a little longer .

It remains to be seen if or when the C.D. Howe proposals regarding changes to the AOE for public pension plans will make it on to the “To Do” list of the current or future federal governments.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Public pensions not enough, most Canadians say

By Sheryl Smolkin

While most (94%) Canadians aged 55 to 75 ‘agree’ that they would ‘like to have guaranteed income for life’ when they retire, a new Ipsos poll* conducted on behalf of RBC Insurance finds that just two in ten (22%) Canadians agree that ‘Canadian public pension plans (such as CPP/QPP/OAS) will provide enough retirement income’ for them. In fact, most (78%) disagree that these pension plans will suffice.

It’s no surprise then that six in ten ‘agree’ that they’re ‘worried about outliving their retirement savings’, while four in ten ‘disagree’ that they’re worried. Women (66%) are considerably more likely than men (50%) to be worried about outliving their savings, as are those aged 55 to 64 (62%) compared to those aged 65 to 75 (52%).

Atlantic Canadians (67%) are most worried about outliving their retirement savings, followed by those in Ontario (63%), Alberta (60%), Quebec (59%), Saskatchewan and Manitoba (58%) and finally British Columbia (41%).

One way of supplementing retirement income is through the use of an annuity, but many Canadians aged 55 to 75 appear in the dark about what an annuity is and how it might help them. In fact, six in ten say ‘that they ‘don’t know much about annuities’, while four in ten disagree that they lack knowledge in this area.

Women (71%) are significantly more likely than men (51%) to say they don’t know much about annuities, as are those aged 55 to 64 (66%) compared to those aged 65 to 75 (55%). Albertans (75%) are most likely to admit they don’t know much about annuities, followed by those living in Saskatchewan and Manitoba (71%).

Responses to this quiz also confirm that many Canadians lack fundamental knowledge about annuities. Just 55% of Canadians were able to answer more than half of the questions correctly, and only 6% got all six questions right. British Columbians (62%) were most likely to pass the test, followed by those in Quebec (57%), Ontario (54%), Atlantic Canada (53%), Alberta (52%) and finally Saskatchewan and Manitoba (49%).

  • Just four in ten believe that it is true that they need a licensed insurance advisor to buy an annuity. In contrast, six in ten believe this is false – when in fact, it is true.
  • Seven in ten correctly believe it’s true that there are potential tax savings to investing in annuities, while 29% incorrectly believe this to be false.
  • Half incorrectly believe it’s true that annuities last for a specific period of time, while the other half believes this is false, which is the correct answer.
  • Seven in ten correctly believe it’s true that annuities can provide guaranteed income for life, while three in ten incorrectly believe this to be false.
  • Half think it’s true that annuities are not a good investment during low interest rate environments, while the other half correctly believes this to be false.
  • Three quarters correctly believe it’s true that they can invest in an annuity using their RRSP and/or RRIF savings, while 27% incorrectly think this is false.

Despite the majority being uneasy about their retirement savings, just one in three agrees that they are exploring or considering annuities as part of their retirement plan, while most (65%) are not. One quarter say they have an annuity.

Members of the Saskatchewan Pension Plan can opt at retirement to receive an annuity payable for life. Life only, refund and joint survivor annuities are available.

*These are some of the findings of an Ipsos poll conducted between August 7 to 14, 2015 on behalf of RBC Insurance. For this survey, a sample of 1,000 Canadians aged 55 to 75 from Ipsos’ Canadian online panel was interviewed online.

Are Canadians saving enough for retirement?

By Sheryl Smolkin

Are Canadians saving enough for retirement? It depends who you ask.

A BMO survey conducted in early 2014 revealed that only 43% of Canadians planned to make RRSP contributions by the March 1st deadline, down from 50% the previous year. An October 2014 study from the Conference Board of Canada reports that almost four in 10 Canadians are not saving and nearly 20% of respondents said they will never retire.

Yet a 2015 study of 12,000 Canadian households conducted by consulting firm McKinsey & Co. says that four out of every five of the nation’s households are on track to maintain their standard of living in retirement. The research reveals that most of the unprepared households belong to one of two groups of middle to high-income households:

  • Those who do not contribute enough to their defined contribution (DC) pension plans or group, and
  • Those who do not have access to an employer-sponsored plan and have below average personal savings.

The McKinsey study suggests that since the retirement savings challenge is quite narrow, the best way to address it should be an approach targeted to these groups that is balanced and maintains the fairness of the system for all Canadian households.

And now, Malcolm Hamilton, a Senior Fellow at the C.D. Howe Institute and a former Partner with Mercer has weighed in on the issue with his commentary Do Canadians Save Too Little?

Hamilton agrees with the McKinsey research that Canadians are reasonably well-prepared for retirement. Most save more than the five percent household savings rate. Most can retire comfortably on less than the traditional 70% retirement target. Furthermore, the size of the group that appears to be “at risk” cannot be accurately determined nor can the attributes of its members be usefully described.

He notes that a couple can live comfortably after retirement despite a reduction in income of more than 30% for several reasons:

  • They no longer need to save for retirement.
  • They no longer contribute to CPP and EI.
  • One of their largest pre-retirement expenses – supporting children – ends.
  • During their working lives the couple acquires non-financial assets like the family home, cars, furniture, art and jewelry. Some can be turned into a stream of income. Some cannot. But they do not need to budget to re-acquire these items during retirement.
  • Finally, any tolerable reduction in post-retirement income is amplified by a disproportionate reduction in income tax due to the progressive nature of our tax system and special tax breaks reserved for seniors.

As studies of our retirement system become more sophisticated, Hamilton thinks we should focus more on solutions for individuals who are not saving enough as opposed to a blanket approach that will impact everyone

So how can we fill the “gaps” identified by these studies?

Hamilton is not a big fan of an enhanced Canada or Quebec Pension plan. He agrees that CPP/QPP are effective ways to increase the post-retirement incomes, and to reduce the pre-retirement incomes, of all working Canadians.

However, he says they are ineffective ways to increase the post-retirement incomes of hard-to-identify minorities who are thought to be saving too little. “Their strength is their reach – they can efficiently move everyone to a common goal,” Hamilton says. “But what if there is no common goal? What if there are only individual goals dictated by personal circumstances and priorities?”

The report concludes that because gross replacement targets are unreliable measures of retirement income adequacy due to the diversity of our population, programs like the CPP/QPP can go only so far in addressing our retirement needs. They can establish a lowest common denominator – a replacement target that all Canadians should strive to equal or exceed.

“Beyond that, we need better-targeted programs – programs that are better able to recognize and address our individual needs,” Hamilton says.