A little over two years ago, Daniel Kahneman wrote a seminal book on human behaviour and perceptions titled Thinking, Fast and Slow. In the book, Kahneman makes the following observation, “A reliable way to make people believe in falsehoods is frequent repetition because familiarity is not easily distinguished from truth.”

I would submit that this phenomenon is the basis for the widespread belief that Canada is suffering a national retirement crisis. The frequent repetition in the media that Canadians are not preparing themselves adequately for retirement certainly has to colour our thinking on the matter.

The obvious rejoinder is that the retirement crisis is based on facts rather than perceptions. One of the key pieces of hard evidence to this end is the dismally low percentage of Canadians who contribute to RRSPs in a given year. Statistics Canada reported recently that just 24% of tax filers made an RRSP contribution in the 2012 tax year. That one statistic alone apparently settles the debate and suggests we redouble our efforts to find remedies.

But not so fast. What if 90% of Canadians rather than 24% were making substantial provision for retirement each year? Would we still be so certain that we have a pension coverage problem? Would the expansion of the Canada Pension Plan (CPP) be as high a priority, or would this new fact make us pause to reassess the urgency of the entire pension reform debate?

This question is not as hypothetical as it appears. While it’s true that just one-quarter of tax filers contribute to an RRSP in a given year, most tax filers have no reason to contribute. With a total population of 35 million including children, it may be surprising to learn that Canada has about 25 million tax filers. Included among tax filers are more than five million seniors who are past the RRSP accumulation phase. Also included are several million young Canadians who file a tax return because they had part-time or seasonal jobs. Also included are millions of low-income Canadians who would be well-advised to steer clear of RRSPs since the income from RRSPs in their retirement would reduce their Guaranteed Income Supplement. The number of tax filers who should be making contributions to RRSPs is a smallish fraction of the 25 million total.

So much for the denominator. What about the numerator (the number of tax filers who actually do contribute to RRSPs)? That number also needs to be modified. We should augment it by adding in people who contribute only to tax-free savings accounts (TFSAs) and also adding in employees who participate in pension plans but not in RRSPs or TFSAs.

When we do the math—and admittedly a number of approximations are needed in the absence of robust data—we find that the percentage of people who should be saving in an RRSP, pension plan or TFSA in a given year is over 80%, not 24%. And this still excludes the literally millions of baby boomers who will be bailed out (rightly or wrongly) by significant inheritances that will not show up in any pension coverage statistics.

By the way, the average RRSP contribution that was made in 2012 was almost exactly $6,000 ($5,999 according to Statistics Canada). Not bad, you might say, but not enough to provide real retirement security. Before coming to that conclusion, consider the following three facts.

First, of the nearly six million Canadians who contributed to an RRSP in 2012, more than two million also participated in a pension plan. Their RRSP contributions would have been lower, so the remaining RRSP contributors must have put in more than $6,000, on average.

Second, millions of RRSP contributors also put money into a TFSA. As of 2011, 8.2 million Canadians had a TFSA and based on the year-by-year growth in the number of accounts, there are probably more than 10 million people that now have TFSAs.

Finally, the average Canadian wage is just over $50,000, so setting aside $6,000 (or more) for retirement is quite a substantial sum.

Is all this to say we shouldn’t be expanding the CPP or creating pooled registered pension plans or taking other steps to improve the general state of preparation for retirement? Of course not. The retirement income system is a work in progress, and we need to continue improving it. It does suggest, however, that retirement coverage is not the burning platform it is made out to be. Hence, we would do well to dial down the rhetoric.

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Fred Vettese is a partner and actuary at Morneau Shepell. These are the views of the author and not necessarily those of Morneau Shepell or Benefits Canada.
Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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Even if we accept this argument there is one glaring hole in it. Something the actuaries always ignore. It assumes the RRSP contributions made are untouched until retirement. They are not… There is often withdrawals.

The vast majority withdraw from their RRSP at least once throughout their working lifetime, some much more often. Sometimes it is a vacation, sometimes a car purchase or a emergency financial need. RRSP withdrawals are frequent and widespread and it isn’t just the Homebuyers or LLP.

The actuaries can accurately track the horse going into the barn and run the numbers like Fred has, interpreting them for his anti-CPP expansion stance but he completely ignores the horses going out of the back of the barn.

He has ZERO figures or facts on the amount withdrawn from RRSPs each year. I am no Math Wizard but you would think the total (RRSP Contributions minus RRSP withdrawals each year) would be the real number of interest.

How do I know with such certainty that RRSPs are frequently withdrawn from? I administered Group Retirement Plans for many years.

The Employers who place withdrawal restrictions on Group RRSP plans stem the flow of withdrawals a little.

National data on withdrawals from RRSPs is never presented or discussed but given my experience and small sample size of Group RRSP plans, I would estimate that over a 5 year period at least 65% of the plan’s members do at least one withdrawal some will deplete close to the whole value they have saved over several years. Motivated to access the employer matching contribution.

Individual RRSPs are probably much higher but I have no direct experience with those accounts in processing. It is really time to admit that the RRSP experiment has failed.

The solution has been discussed for years now. A Voluntary Supplementary CPP “choice” for Canadians. Give Canadians and Employers the choice of using a Financial Institution or an expanded CPP. The only ones who do not like this option are the ones who profit from the existing system…

Thursday, May 15 at 4:43 pm | Reply

Jim Cochrane:

As a designer of some of those Group Plans we intentionally advised clients to provide for withdrawls and transferibilty to more attractive investment/lower MERs and ultimately better results. Unfortunately this enhanced the predatory attractiveness not always enhancing the future retirees fund balance. It did retain the real attractions Immediate Tax saving at source, payroll deduction, and flexibility while avoiding some of the employer directed criticism for fund return.

Tuesday, June 17 at 7:12 pm | Reply


I missed the bulletin that advised us Canada’s over 65 population had reached 25%. of our total.
Doing the math we have 5 million over age 70 (past the accumulation age ) and a few more disproportionate million between age 65 and 70 some of them boomers I believe they are called. Then we of course have some who are working poor but over 65 and remitting…..

Add those to the 5 million you mentioned and we do indeed have a retirement crisis. Either 1 in 4 Canadians is retired or you and I keep adding people mutliple times. I knew I should have bought an abacus. Senior moments.

Tuesday, June 17 at 7:37 pm | Reply

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