The Canada Pension Plan enhancements are a strong start but the country needs to do more to help people prepare for retirement, according to a new report from Ryerson University’s National Institute on Ageing.
The paper — authored by Keith Ambachtsheer, director emeritus of the International Centre for Pension Management, and Michael Nicin, executive director of the National Institute on Ageing — highlighted several initiatives Canada is taking to improve retirement security. These include CPP and Quebec Pension Plan enhancements; public sector pension plans offering their pension management infrastructure to assist private sector employers; new pension delivery organizations offering collective, multi-employer retirement savings programs; and the evolution of public sector defined benefit pension plans towards increased sustainability through risk-sharing.
Despite all these developments, the paper noted Canada’s retirement system still faces four main challenges. First, employer-sponsored pension and savings plans still cover too few people — of 19 million working Canadians, more than 12 million aren’t covered by a plan.
Second, Canadians who are saving independently of an employer plan aren’t necessarily suited to the subsequent investment responsibilities. And those savings typically underperform compared to a workplace savings arrangement. The paper referred to an analysis by the Broadbent Institute, which found the median annual retirement income for families without a workplace pension was $31,400 in 2011, compared to $55,400 for those with a workplace pension. Those numbers included funds from old-age security, the guaranteed income supplement and CPP/QPP.
Third, the paper noted the “material legislative and regulatory barriers” preventing Canadians from protecting themselves against outliving their money: they can’t defer receiving CPP, QPP and OAS above the age 71 ceiling, or through collective, variable longevity risk-pooling arrangements. While the federal government did propose allowing advanced life deferred annuities and variable payment life annuities in its 2019 budget, the paper said ongoing education will be necessary to help Canadians who aren’t in DB plans understand the value of these options.
And finally, the paper suggested that the federal government address Canada’s retirement age “in the context of real demographic challenges facing Canadians in the decades ahead,” and ensure low-income workers aren’t disadvantaged by being encouraged or required to save for retirement only to see their income-tested GIS reduced in their retirement.
“It is becoming increasingly evident that the traditional life course milestones of getting an education, finding meaningful employment with a high certainty of belonging to a workplace pension plan and counting on a well-deserved retirement are fading away,” said Nicin in a press release. “Personal financial uncertainty now prevails for many Canadians.”