Canadian Perceptions of Pension Reform

A recent Ekos survey  Canadian Perceptions of Pension Reform and Retirement Security finds that only 15 per cent of Canadians are “very confident” they will have enough money to retire “comfortably” compared with 29 per cent who are “somewhat concerned” and 21 per cent who are “very concerned. 

In addition, 69 per cent of Canadians believe the federal government should take the lead in ensuring “Canadians can retire – either through savings programs or income supports.”

One of the reasons is that most Canadian workers do not have a workplace pension plan. Coverage under these plans has dropped from 45% of employees in 1992 to just 38.8% in 2010. The reality is that 11 million Canadian workers don’t have a workplace pension plan.
To make matters worse, most Canadians are not making up for their lack of a pension plan by saving for retirement on their own. In 2009, only 31% of those eligible to contribute to an RRSP actually did so. This number dropped significantly in 2010 to just 26%. Statistics Canada reported recently that just 24% of tax filers made an RRSP contribution in the 2012 tax year. 

Among people about to retire — i.e., those age 55 to 64 — the typical person with an Registered Retirement Savings Plan has saved about $55,000. That’s enough to provide a monthly income of about $250. 

The survey notes that “Canadians view pension enhancements as an investment not harmful to the economy.This contrasts with Ottawa’s position – last December, the provincial finance ministers met with then-federal finance minister Jim Flaherty. Pension reform was discussed but was dismissed by Mr. Flaherty. The federal government’s position was that the economy was still weak and it wasn’t the time to increase CPP contributions.

According to the survey, 63 per cent of Canadians believe that “increasing premiums is an investment in achieving a more secure retirement …” It also found 55 per cent of respondents want provinces and territories to “pursue their own supplementary pension plans in the absence of federal leadership on the CPP.”

The Canadian Institute of Actuaries says “only about one-third of Canadian households are currently saving at levels that will generate sufficient income to cover their non-discretionary expenses in retirement.” Public pension plans available to everyone — Old Age Security (OAS) and the Canada Pension Plan — don’t provide enough for people to live on in retirement. The expectation is that people will supplement the benefits available from these plans with membership in a workplace pension plan or with their own savings. Clearly that has not happened. That one statistic that only 24% of us invest in our retirement settles the debate and suggests we redouble our efforts to find remedies

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.