For the small number of seniors considered low income who receive an average of $3,610 from the Canada Pension Plan each year, enhancements to the national pension may not be beneficial, according to a new study from the Fraser Institute.
The study looked at which senior groups are the most vulnerable in Canada, as well as how changes to the CPP might affect them. Published today, the study comes the same week Canada’s finance ministers confirmed they would meet on June 19-20 to discuss potential changes to the CPP.
By looking at seniors who live independently of other family members, it found a disproportionate 10.5 per cent of single seniors, who are either divorced, widowed or never married, are living on a low income. That compares to 4.2 per cent for married couples with one senior member and 1.3 per cent for married couples with two seniors.
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The Fraser Institute noted that “fewer Canadian seniors live in low income today than at any point over the past four decades, and seniors are less likely to live in low income than the rest of the working age population.”
Still, the study found nearly half (48.9 per cent) of single seniors without CPP income are in the low-income category. Citing limited work history as a key factor in those low incomes, it noted that enhancing the CPP wouldn’t help seniors in that position because there would still be people who wouldn’t qualify for benefits regardless of any reforms.
The study also points to the potential for increased income from the CPP causing a reduction of other benefits such as old-age security or the guaranteed income supplement. “Specifically, a two-dollar increase in CPP income for low income seniors could translate into a one-dollar decrease in the GIS transfer,” the study noted.
“For single seniors who are receiving the top-up benefit, they would face an additional GIS transfer reduction of a dollar for every four dollars of new CPP income.” Combined, that could mean a senior’s GIS transfers might fall by $3 for every $4 increase in CPP income, according to the study.
Regardless, it’s unlikely CPP reforms would affect seniors who are currently vulnerable, says Monique Moreau, director of national affairs at the Canadian Federation of Independent Business. “From the CFIB’s perspective and the research that we’ve done, based on the availability of information that’s out there in terms of options for expanding CPP, we think it’s going to be about 40 years before benefits come into place,” she adds.
Meanwhile, for working-age people at risk of becoming low-income seniors, a targeted approach to retirement income security may be beneficial, says Frank Swedlove, president and chief executive officer of the Canadian Life and Health Insurance Association.
As set out in a letter to finance ministers on Wednesday and signed by the CLHIA, Swedlove envisions a boost in contributions to the CPP for those with incomes above $27,500 with the related benefits increased, while those below the threshold would continue to pay the same amounts as before.
“For the lower-income people who earn $27,500 [or less], the benefit of having a higher CPP contribution is outweighed by the fact that they would have less income available to them in their working years, and also that the way clawbacks work, that their overall pension income, retirement income will not go up significantly enough to compensate for the losses that they pay,” says Swedlove.