Fraser Forum

It’s a myth that most Canadians aren’t adequately prepared for retirement

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The debate about expanding the Canada Pension Plan (CPP) is heating up so it’s important to arm Canadians with facts about our retirement income system. After all, proponents of expansion often rely on inaccurate information or mistaken assertions to support their arguments. For instance, a core argument used to push for CPP expansion is the false claim that Canadians aren’t adequately prepared for retirement. This claim is false because it contradicts the best available evidence on retirement income adequacy.

First, consider the results of a major research working group created by Canada’s finance ministers back in 2009 to study the issue of retirement financial security. Led by economist Jack Mintz, the group concluded that: “Overall, the Canadian retirement income system is performing well, providing Canadians with an adequate standard of living upon retirement.”

Subsequently, in another detailed examination, former chief economic analyst at Statistics Canada Philip Cross showed that it’s important to account for all the resources available to Canadians upon retirement when analyzing retirement security. That includes more than just the assets Canadians accumulate in the formal pension system, which consists of the Canada and Quebec Pension Plans, Registered Retirement Savings Plans (RRSPs), and Registered Pension Plans (RPPs). Canadians also save outside the pension system through stocks, bonds, real estate, and other investments. In 2014, these non-pension assets totalled $9.5 trillion, dwarfing the $3.3 trillion assets in the formal pension system. Claims that Canadians are not saving enough tend to overlook non-pension assets.

A Statistics Canada study found that once you include the potential income derived from pension and non-pension assets such as mutual funds and housing, households headed by seniors are typically better off financially than those headed by younger Canadians.

Accounting for non-pension assets in projections of future retirement income certainly makes a difference. Fred Vettese, a prominent actuarial, calculated that by including assets outside of pension plans, and adjusting retirement income projections to allow for later retirement and changes in consumption behaviour as retirees age, many Canadians may in fact be over-saving for retirement. Specifically, more than 42 per cent of middle- and upper-income households will be able to consume more in retirement than during their working life.

Even when it comes to private pensions, Canadians contribute more than is generally thought. Pension expert Malcolm Hamilton points out that private pension contributions to RRSPs and RPPs have actually increased as a percentage of employment income, nearly doubling from 7.7 per cent in 1990 to 14.1 per cent in 2012.

Yet some, including the federal government, argue that expanding the CPP is needed to counteract the downward trend in workplace pension coverage. This argument assumes that without access to a workplace pension such as an RPP, Canadians will not save enough for retirement. But research from Statistics Canada shows that, relative to their pre-retirement income, retirees without an RPP have a higher average retirement income than those who do not (although the median is slightly lower). Simply put, lack of a workplace pension does not doom someone to a financially insecure retirement.

The evidence does not support the argument that Canadians aren’t adequately prepared for retirement. Expanding the CPP is a solution in search of a problem.