Many Canadians lack sufficient funds for retirement

A study by the Broadbent Institute shows that only 15 to 20 percent of middle-income Canadians who are retiring without an employer pension plan have saved sufficient funds for their retirement.

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The group, now at the age of 55 to 64, will face a huge drop in their standard of living once they retire. Many will be below the poverty line. The study used figures from Statistics Canada to reach their conclusion. Almost half of Canadians, 47 percent have no employer pensions. The situation will become worse as even less younger Canadians have employer pensions. Author of the report, Richard Shillington, says that the number of seniors who are living at the poverty level will increase over the next decades.

The median value of retirement assets of those Canadians age 55 to 64 was just $3,000. Those retiring without an employee pension will get the Canada Pension Plan(CPP) and Old Age Supplement(OAS), if they qualify for the latter. The total yearly compensation will be on average $15,9770 for individuals and $25,746 for couples. To reach a better standard of living, pensioners are expected to top up their pensions with their own savings. Less than half of those in the 55 to 64 age groups have enough savings to top up their pensions for more than a year. Less than 20 percent could top off their pensions for more than five years.

Shillington claims that seniors living in poverty have risen from 3.9 percent in 1995 to 11.1 percent now. A full 30 percent of women living alone as seniors are in poverty. The total number of seniors in poverty Shillington estimates at 719,000, with 469,000 being single individuals.

Rick Smith, who is executive director of the Broadbent Institute, said: "Even if you assume a decreased need or if you liquidate your home equity, the news is still very grim. We're looking at a situation in our country — 10 years down the line, 15 years down the line — where millions of Canadians have very little disposable income and that's not good for the economy."Smith said that the Liberal federal government needed to move quickly to reform the CPP. He said that governments and others had been arguing that Registered Retirement Savings Plans(RRSP) and Tax Free Savings Accounts could be a replacement for workplace pensions. While they do help some people who have the money to save, they do not replace pension funds. Shillington wrote in his report:"These findings raise serious questions about the policy needs for future pensionless cohorts, such as the adequacy of benefits from Old Age Security, the Guaranteed Income Supplement, and the Quebec and Canada pension plans."The Broadbent Institute was created by former NDP member and leader Ed Broadbent. The instituted studies Canadian public policy with a view to making Canada a more equitable society.

During the 2015 election campaign the Liberals promised that they would improve the Canada Pension Plan. Just before Xmas, Finance Minister Bill Morneau and provincial counterparts met to talk on possible reform but all that was agreed was to discuss the issue later. While the group hope to meet again before the end of 2016, with so many diverse provinces it may be difficult to reach a consensus agreement. In a pre-budget submission the Canadian Association of Retired Persons(CARP) said that it backed a modest increase in the CPP but did not specify a number. They also requested a supplementary Universal Pension Plan(UPP) that would cover the more than 25 percent of pre-retirement income that the CPP is designed to replace. The CARP has been pushing for this mandatory UPP for almost 8 years.

Some opponents of increasing the CPP argue that an increase in CPP premiums would kill jobs. For example, the Canadian Federation of Independent Business argues that an increase in premiums would cost the Canadian economy about 110,000 jobs by 2020. Any hike would act as an employer payroll tax and depress workers' wages.

Canadian debt loads are increasing especially for seniors according to Equifax. One significant reason why seniors do not have sufficient funds for retirement is that many company plans are not defined-benefit pensions but defined-contribution plans which end up delivering a lower benefit.

There are several proposals to beef up the Canadian Pension Plan including one from the Canadian Labour Congress:Labour groups say the proposal would see the doubling of the CPP income replacement rate to 50 per cent and push the maximum CPP benefit to $24,000 per year and the average benefits to $12,600 per year. For 2016, the maximum CPP benefit will be about $13,000 for the year, and the average payment works out to just over $7,550 annually.

The issue of adequacy of income for retirement is also bedeviled by widely differing views as to what amount of income is required. Nevertheless, increasing debt loads, and decreased saving point to a situation where many seniors will face a considerable decline in their income after their retirement.