When considering claims that Canadians lack adequate savings for retirement, it’s crucial to ask whether “fourth-pillar” assets have been fully considered in reaching this conclusion, argues a new report by the C.D. Howe Institute.
These fourth-pillar assets – which include real estate, publicly traded securities, privately owned business investments, insurance products and tax-free savings account accumulations – significantly improve the outlook for Canadians’ retirement readiness, according to the report.
Jeremy Kronick and Alexandre Laurin, the authors of the report, focus on the group generally thought to be most at risk of inadequate retirement savings: employed 35-to-64-year-old Canadians. After factoring wealth already accumulated from all fourth-pillar assets, the authors found that 40 per cent of this group has potentially already accumulated sufficient wealth to sustain themselves in retirement.
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“Contrary to popular claims of widespread gaps in Canadians’ retirement preparedness, a closer analysis of the impact of fourth-pillar assets show fewer Canadians at risk than previously thought,” said Laurin.
Canadian households can count on various sources of wealth in retirement, notes the report. Government payments through the old-age security benefits and the guaranteed income supplement program provide a basic income for all Canadian retirees. These payments are complemented by the Canada/Quebec Pension Plan.
Combined, these government programs provide a guaranteed annual income stream and form pillars one and two of the Canadian retirement income system, according to the report. For the third pillar, the report points to workplace pension arrangements such as defined contribution and defined benefit pension plans, tax-deferred retirement savings plans and individual registered plans.
“Much of the policy debate in Canada around the adequacy of retirement saving has ignored the role of fourth-pillar assets or has tended to acknowledge their potential role but ultimately dismisses their importance,” states the report. “Despite this lack of attention by policymakers, private wealth accumulated in assets other than pension and retirement saving plans can provide a significant source of retirement capital.”
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