Report recommends longer deferral period for CPP, QPP

A new report from the C.D. Howe Institute is recommending a longer deferral period for the Canada Pension Plan and the Quebec Pension Plan, suggesting that retirement savers would benefit from the greater flexibility and security.

The report’s authors propose increasing the deferral period by five years, to age 75 from 70. They also suggest that deferring the receipt of public pension benefits makes planning for retirement more affordable for Canadians who use registered retirement savings plans and defined contribution pensions.

“The deferrals enhance the annual amounts of C/QPP and [old-age security] received, which in turn lowers the amount of private savings required,” said Bernard Morency, a senior fellow at the institute and one of the report’s authors, in a news release.

“Pension deferral is thus both an effective means of reducing the savings required overall and of reducing risk.”

Read: CPP enhancements to increase total benefits by 44% by 2070: study

Extending the deferral period is an immediate remedy for providing sustainable public pensions, added Antoine Genest-Grégoire, a Montreal-based research economist and an author of the report. “Our modelling shows this step could help retirees worried about running out of savings or not hitting their retirement income goals,” he said.

“Delaying public pension take up would allow middle- and upper-middle income Canadians greater retirement planning flexibility to the extent they have private savings to rely on in the meantime.” 

The reform is simple and would involve very little cost to the CPP and QPP, according to the report. As well, it would complement the incoming CPP and QPP reforms by giving middle- and high-income workers more options. The report’s authors also suggest raising awareness and providing information to the public around retirement planning.

Read: CPP changes do little to ensure appropriate income for future retirees

“The simple fact of offering new opportunities does not greatly improve the situation of retirees if no one makes use of them,” the report stated. “For example, the existing starting age flexibility of the plans is not used a great deal by retirees, as evidenced by the fact that only about three per cent of new QPP beneficiaries and six per cent of new CPP beneficiaries are over 65 years old.” 

The suggested reform, along with education, would help the public pension plans and old-age security benefits to respond to the needs of seniors, specifically those in the middle-income bracket and above, according to the report. Its authors also expect that increased benefit flexibility and greater understanding of the plans will raise public support and improve the feeling of ownership, which will in turn contribute to their sustainability.

“Pushing back the deferral period to age 75 would enhance retirement planning flexibility for many middle-income Canadians,” said Morency. “As we wait for broader enhancements to be completed over the coming decades, this reform would be a good first step.”

Read: Despite complexities, expanded CPP the right call