Saving for retirement is a key priority for young and old alike. Research shows that the Canada and Quebec Public Pension plans, the Old Age Security System and the Guaranteed Income Supplement are among Canada’s strongest, best planned, and best funded social policies. So, among the policy problems facing younger generations, saving for retirement is important, but not our biggest challenge.
Still, retirement policy refinements can be helpful in the light of the following evidence:
Research shows that replacing income in retirement is generally not a problem for lower-income households. If there are risks, it is for middle to higher income households.
While income replacement is less of a problem for low-income households in retirement, income adequacy is an ongoing concern. Statistics Canada shows that a smaller proportion of seniors fall below low-income cut-offs than any other age group. To ensure that this remains the case, the Guaranteed Income Supplement should be adjusted for inflation to keep pace with low-income cut-offs.
Research also cautions against accepting uncritically when Banks and Investment Companies tell Canadians we should be aiming to replace 70 per cent of our income when retired. Evidence indicates that a replacement rate of between 40 to 70 per cent will result in many Canadians enjoying a better overall standard of living in retirement than what they experience as young adults, especially when they start their own families.
Given this research, we recommend conditional support to:
Double the Yearly Maximum Pensionable Earnings under the Canada and Quebec Public Pension plans. This recommendation is guided by research from economists Dr. Kevin Milligan and Dr. Tammy Schirle.
- In combination with Old Age Security and the Guaranteed Income Supplement, this change would ensure all Canadians with incomes under $107,200 would replace at least 40 per cent or more of their income, and keep low-income rates low for seniors now and into the future.
- It would give Canadians greater access to the expert management of the CPP Investment Board, at reduced fees than we pay in the private sector.
- This change could be accommodated by private employer sponsored pension plans and, therefore, not change the total amount saved by Canadians who already have private pension plans to supplement the current CPP system. As a result, this CPP adaptation would target the portion of Canadians who are at greater risk of not replacing enough of their income in retirement – middle to higher income earners without employer-sponsored pensions – and would share responsibility for the additional saving between workers and employers alike.
Our support for doubling the Yearly Maximum Pensionable Earnings is conditional on any change to public pensions being implemented in combination with policy adaptations designed to save younger Canadians money on things like child care, parental leave and/or student debt. It is imperative to implement pension policy reform in tandem with measures designed to save younger generations money so that they can afford to contribute more to retirement planning without exacerbating their current time and money squeeze because young people’s full-time earnings are down thousands of dollars compared to 1976, while housing prices are up hundreds of thousands.