Pension issues and Poverty among seniors

 A report out in 2016 by Richard Shillington shows that many Canadians, particularly those without an employer pension plan, have wholly inadequate retirement savings.

Poverty trends over the recent past show that senior poverty has increased from a low of 3.9 percent in 1995 to 11.1 percent, or one in nine, in 2013. The poverty rates for single seniors, particularly women (at nearly 30 percent), are very high. The Key findings of the report show some, I would say alarming information that hopefully those groups that speak for retired people will bring to and hold our politicians to account.

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 percent of median incomes in 1984 to about 60 percent now. For senior couples, the OAS/GIS maximum benefits have declined from 53 percent to 40 percent 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 percent and 48 percent) than for single men (between 31 percent and 37 percent).

·       Roughly half (47 percent) 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 percent 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 percent) 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 senior’s 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 percent 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 2015 elections, the Liberal Party promised to increase the GIS by 10 percent for single seniors. What they did was to give with the left hand and take away with the right. A Globe and Mail article from 2017 said that “The federal government's plans to enhance the Canada Pension Plan will ultimately bump 243,000 low-income Canadians from qualifying for the Guaranteed Income Supplement, according to the latest report from Canada's chief actuary.”

The GIS benefits are based on income and are fully phased out for single seniors who earn more than $17,688 a year.

Many Canadians do not have a pension plan so there is a necessity to have policies that address the needs of these Canadians who have no pension or savings for retirement. Policies that address the adequacy of benefits from Old Age Security, the Guaranteed Income Supplement, and the Quebec and Canada pension plans. The findings also give the federal government a roadmap as it moves forward to craft policy to address the economic security of Canada’s growing population of seniors.

While the situation for many Canadian seniors are much improved compared to the late 1970s, there is no justification for complacency as trends of the last several years and projections into the future point to a deteriorating situation for their economic security.

Poverty rates for seniors have been trending up since 1995. Rates remain unacceptably high for single seniors—especially women—and the worsening trends in pension coverage point to further increases in poverty in the future. The GIS is the most effective federal mechanism in the short term for reducing the poverty rate and the impact of poverty on seniors, and it can be targeted at senior individuals who need it most.

The data on the retirement savings of Canadians currently nearing retirement age is unequivocal. A substantial proportion of middle-income Canadians without an employer pension plan will face a dramatic drop in living standards during their retirement years.

The panoply of public policies offering “voluntary” options for saving—such as RRSPs, TFSAs, group RPPs, and the more recent Pooled Registered Pension Plans—have demonstrated their inadequacy to address the shortcomings in declining workplace pensions and a Canada Pension Plan with limited benefits. There may be an important role for incentives to expand workplace pensions (particularly of the defined-benefit variety), and to enhance benefits of the Canada Pension Plan.