Lower Risk, Higher Reward: Renewing Canada's Retirement Income System

Submitted by Tamarack on August 14, 2015 - 12:22pm
From the policy series 'Renewing Canada's Social Architecture'

Of all OECD nations, Canada now boasts one of the lowest poverty rates among the elderly population.

While we do not have the most generous Retirement Income System (compared to Australia, Norway, and the Nordic countries), the pillars of our income system have fairly effectively been keeping seniors from falling into the poverty trap when measured against the LICO.  The pillars of Canada's retirement plan include: the basic income guarantee (GIS combined with OAS), the Canada/Quebec Pension Plan, employee private pension plans, and individual savings.  With a greater emphasis on individual savings.

See related- Saving for Low-Income Retirement Planning in Canada: Living in a Different World, by John Stapleton

But will our programs hold up and continue to be effective as the population ages and the retirement experience changes? Not only is the shrinking workforce going to impact economic growth, our population is retiring earlier and living longer (on the system).  More retirees lack the necessary financial literacy, leading them to underestimate how much retirement will cost and underprepare, especially concerning increased health care costs in later years, and we are starting to see higher rates of middle- and upper-income retirees claiming OAS and GIS.  For those who are able to invest and grow their savings, retirement investment options are now riskier and returning less than they have in the past.  The quality of pensions is decreasing, with group plans on the rise, and companies are trending towards part-time, temporary, and un-benefited work.  

What problems are we seeing?

Not only is there concern for the single elderly population that most often still falls below the poverty line because of the heavier cost burden, there are also many low-income retirees who hover precariously above the low-income cut-off line, folks not included in a private employer pension plan, and even many middle- to upper-income households who are experiencing a rocky transition maintaining their quality of life from work to retirement.

The authors of 'Lower Risk, Higher Reward' present a number of suggested policy changes:  

1. Increase earnings and education during working years.  
First and foremost, investment in education, educational literacy, and increasing people's incomes in the pre-retirement years will increase their savings cushions.

2. Create more equal outcomes
The authors suggest two ways of doing this
a) enhance the GIS and bring low-income seniors above the LICO poverty line.
b) add an extra top-up for single seniors, going past OAS levels, recognizing the extra cost burden for single seniors who have never been married.

3. Prolonging earnings: income and annuities
Lengthening the time in the labour market conversely shortens an individual's time in the retirement. The government has already pushed back the age for claiming OAS and GIS to 67 years, but there is little cohesiveness in pensionable ages across Canada's Retirement Income System, which still starts paying CPP/QPP at 65 years.  Creating a standard pensionable age and automatically adjusting it to our ever-improving life expectancy would ensure a comprehensive system and signal to workers to save for longevity.  

The government should also be encouraging different annuity options, such as lowering the minimum rate of funds that must be withdrawn from an RRIF each year, to help seniors keep their funds for longer.

4. Expand pensions and enforce mandatory savings
 Even if only requiring a worker to set their contributions at $0, the authors argue that this starting point pushes workers and employers in the right direction.

5. Better governance and coordination of pensions
We are going to need better cooperation, communication, and a cohesive understanding of the financial outlook for Canadians between policy makers at different levels of government for us to be effective in creating policy and managing new risks.

Read the full 'Lower Risk Higher Reward: Renewing Canada's Retirement Income System' report attached below.

Other policy papers from the 'Renewing Canada's Social Architecture' series:

Growing Pains: Child Care in Canada- here

Child Benefits in Canada: Politics Versus Policy- here

Unfulfilled Prescriptions: The Drug Coverage Gap in Canada's Health Care System- here

Access to Affordable Housing- here

Modernizing Medicare- here

Disability Supports- here

Policies in Support of Caregivers- here

Employment Skills Training- here


lowerriskhigherreward.pdf1.02 MB