How set are we for retirement?

Click here to read ‘How set are we for retirement?‘ by Antonella Artuso – Toronto Sun, September 12, 2015

TORONTO – Canadians who once dreamed of Freedom 55 now fear they face a work-until-you-drop retirement.

Statistics Canada projects that the number of seniors in the country will surpass the number of children under the age of 15 sometime next year.

As the Canadian population ages and lives longer, there is rising concern that the money will run out before people do.

Polling shows the issue is top of minds for voters, so there’s little surprise federal election candidates are talking about it, too.

University of Ottawa Professor David Gray said some people may have reason to be worried.

The three pillars of the public pension program — the Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS) and the Old Age Supplement (OAS) — ensure that the poor will at least be able to sustain if not improve on their lifestyle, he said.

Wealthy individuals tend to have private pension plans and other resources that buffer them from a drop in lifestyle once they retire, added Gray.

Then there are those people in the middle.

“This is someone who has made perhaps average wages — these days that’s somewhere around $24-$25 an hour,” Gray said. “Someone who is retiring on those types of wages without any private savings is going to have a pretty uncomfortable retirement.”

Susan Eng, the executive vice-president of CARP, which advocates for Canadians ages 50 and older, said the poverty rate for seniors dropped over the past two decades to about 5.4%, largely due to the positive impact of the public pension program, but just this year a rise to about 7% has been noted.

“More people than we think are affected,” Eng added. “Projections based on research on savings rates suggest that approximately half of Canadians will encounter a 25% decline in their living standards when they retire.”

About 600,000 seniors remain in the workforce in Canada, she said.

A poll of CARP members found that while half continue to work past the traditional retirement age because they enjoy it, the other half toil away out of financial necessity.

“They need the group health-care coverage as much as the salary,” Eng said.

The concern over retirement income has led to various responses, mainly a widespread call for an enhanced CPP which would require working Canadians to pay more now to get more later.

Premier Kathleen Wynne is moving ahead with an Ontario Registered Pension Plan (ORPP), a provincial plan for employees without workplace pension plans.

Others have argued that citizens should have or already have better options to save money through private sector options like RRSPs, that enhancing CPP or creating the ORPP would act as a payroll tax to kill jobs, the preferred income program.

Charles Lammam, director of Fiscal Studies at the Fraser Institute, said research shows the problem of adequate retirement income is vastly overstated.

Canadians have a lot more squirrelled away than suspected — in addition to CPP, GIS and OAS, there are private savings in a variety of forms including RRSPs and now Tax Free Savings Account, and the equity in their homes.

“When it comes to savings in retirement, there is not a widespread problem in Canada,” Lammam said. “The overall system is serving the vast majority of Canadians well.”

There’s evidence that every dollar put into an enhanced CPP or ORPP would be one dollar people are less likely to save, so that overall retirement income would not be impacted, he said.

And public programs like CPP and ORPP are not as flexible or transferable as private savings plans, Lammam said.

Legislators should better focus their concerns on the much smaller subset of Canadians who are at real risk of poverty in retirement, usually older single women without significant savings or a lengthy work history, he said.

Eng said affordable housing, extended workplace health benefits, home care and other programs are all part of helping seniors stay out of poverty but CARP continues to support calls for an enhanced CPP.

Additional revenue paid out by CPP would help offset GIS payments which come out of general government revenue, saving taxpayers money, she said.

The Liberals and NDP have committed to returning the OAS eligibility to 65 from the planned increase to 67, she noted.

The NDP have promised to increase GIS to the poorest seniors, she said.

The Conservatives made a similar promise in the last election and kept it, Eng said.

“CARP is looking for a promise to ensure that no senior will live in poverty,” Eng said. “How that is done is not as important as this goal.”

Professor Gray said he favours an enhanced CPP, but has concerns that an Ontario-only pension plan such as the proposed ORPP could put the province at a competitive disadvantage even if the goal is laudable.

“History has shown that inducements for savings — the tax free savings accounts and the registered retirement plans… — people who are earning only average incomes and below they can’t afford to save anything,” Gray said. “And so you can lead the horse to the water but you can’t make every single horse drink. Some people simply cannot afford to save.”

In Their Own Words:

The Toronto Sun asked the three main parties to respond to this question:
“People are concerned about what they’ll live on when they retire. What would your government do to help?”

  • NDP Senior Campaign Advisor Brad Lavigne: “Tom Mulcair’s concrete plan will boost the CPP, helping every single Canadian; protect existing pension benefits; protect pension-splitting; and, boost the GIS (Guranteed Income Supplement) to lift 200,000 seniors out of poverty.”
  • Liberal spokesman Jean-Luc Ferland: “Liberals will work with provinces and territories to expand CPP, reset retirement age to 65, maintain pension-splitting, and address wait times, the affordability of prescription drugs and availability of home care.”
  • Conservative spokesman Stephen Lecce: “Prime Minister Harper is lowering seniors’ taxes by delivering pension income splitting, the tax free savings account, and improved rules to allow for more savings through Registered Retirement Income Funds.”

How much do we really need?

  • How much pre-retirement income is needed to maintain lifestyle in retirement: 50-70%
  • If you make $20,000 a year: Old Age Security (OAS) and CPP will likely maintain same lifestyle even without added savings.
  • If you make $40,000 a year: On top of OAS and CPP, you would likely need an extra $11,795 a year to maintain standard of living.
  • If you make $75,000 a year: On top of OAS and CPP you would likely need an extra $33,329 per year to maintain lifestyle.