An Analysis of the Economic Circumstances of Canadian Seniors

An Analysis of the Economic Circumstances of Canadian Seniors

by Richard Shillington of Tristat Resources February 2016

You may have missed this report which came out last year, you can download the entire report here (pdf file), but I think the key findings are important, so I am sharing them below.

The Broadbent Institutes report authored by statistician Richard Shillington, who, for the first time in Canadaanalyseded the retirement savings of near-retirement Canadians ages 55 to 64 without a workplace pension. The results are startling -- and explain why seniors' poverty is set to rise unless action is taken to tackle the retirement savings crisis, including boosting the GIS and expanding CPP

Poverty rates have been rising and recently plateaued for seniors, and savings data show that many Canadians, particularly those without an employer pension plan, have wholly inadequate retirement savings. Poverty trends over the recent past depend critically on which poverty measure one uses. Using the low-income measure (LIM), we see that senior poverty has increased from a low of 3.9 per cent in 1995 to 11.1 per cent, or one in nine, in 2013. The poverty rates for single seniors, particularly women (at nearly 30 per cent), are very high and need to be addressed.

Key findings:

•                  The Old Age Security (OAS) and Guaranteed Income Supplement (GIS) guarantee levels are falling behind: For single seniors, they have fallen from 76 per cent of median incomes in 1984 to about 60 per cent now. For senior couples, the OAS/GIS maximum benefits have declined from 53 per cent to 40 per cent of median incomes.

•                  Trends in income sources for seniors suggest that poverty rates will increase rather than decline into the future because OAS and GIS benefits are indexed to the Consumer Price Index (CPI), while average earnings rise faster than the CPI over extended periods.

•                  The spread between the OAS/GIS guarantee levels and the LIM for 2015—the spread that seniors need to fill using the Canada Pension Plan/Quebec Pension Plan (CPP/QPP), private pensions and private savings—is about $5,600 for single seniors and $4,700 for couples.

•                  The proportion of the population receiving the GIS is higher for single seniors than couples, and higher for single women (between 44 per cent and 48 per cent) than for single men (between 31 per cent and 37 per cent).

•                  Roughly half (47 per cent) of those aged 55–64 have no accrued employer pension benefits. The vast majority of these Canadians retiring without an employer pension plan have totally inadequate retirement savings. For example, roughly half have savings that represent less than one year’s worth of the resources they need to supplement OAS/GIS and CPP/QPP. Fewer than 20 per cent have enough savings to support the supplemented resources required for at least five years.

•                  The overall median value of retirement assets of those aged 55– 64 with no accrued employer pension benefits is just over $3,000. For those with annual incomes in the range of $25,000–$50,000, the median value is near just $250. For those with incomes in the $50,000–$100,000 range, the median value is only $21,000.

•                  Only a small minority (roughly 15–20 per cent) of middle-income Canadians retiring without an employer pension plan have saved anywhere near enough for retirement. The vast majority of these families with annual incomes of $50,000 and more will be hard pressed to save enough in their remaining period to retirement (less than 10 years) to avoid a significant fall in income.

•                  The seniors’ poverty gap is $2.5 billion in aggregate annually, due to the 719,000 poor seniors (469,000 singles and 250,000 living in an economic family). The average gap per year is $2,400 for single seniors and $5,500 for seniors in a family. A 10 per cent benefit increase in the GIS to address this gap would cost $1,628 million, and would reduce the number of poor seniors by about 149,000.

•                  In the recent election, the Liberal Party promised to increase the GIS by 10 per cent for single seniors. A simulation using Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M) suggests that this would cost $700 million and remove about 85,000 single seniors from the poverty roles, with a reduction in the singles poverty rate of 5.7 percentage points. While this is a reasonable start, clearly more can be done.

These findings raise serious questions about the policy needs for future pension less cohorts, such as the adequacy of benefits from Old Age Security, the Guaranteed Income Supplement, and the Quebec and Canada pension plans. They also provide an invaluable baseline of evidence that the new federal government must consider as it moves forward to craft policy to address the economic security of Canada’s growing population of