The age of retirement, proposed changes don’t make dollars and sense
A new report, by the Canadian Institute of Actuaries (CIA), is calling on the government to raise the retirement age to 67. Compared to 50 years ago, the report says that there are fewer working Canadians contributing to the Canada Pension Plan (CPP), compared to the number of retirees. In the 1960s there were seven Canadians working for every retiree. Now, that number is less than three. While it might sound like it makes economic sense, it could leave some in a financially vulnerable situation – especially those who have been unable to save enough for retirement.
The report is calling on the government to have a discussion about when Canadians can start receiving Old Age Security (OAS) and CPP benefits. The previous government raised the age of retirement to 67, but the current government brought it back to 65. Populaity aside, Canadians are living longer, healthier lives. The president of the CIA, John Dark, says, “It makes sense to update our country’s retirement income programs to reflect this fact.”
The CIA report suggests that senior benefits start two years later than they now do. You can take early retirement with reduced benefits at the age of 60, or delay getting retirement benefits until the age of 70, and receive more. With their recommendations, the age for early retirement would be at 62, standard retirement at 67 and late retirement at 75. This would give Canadians the opportunity to accrue more savings and, ultimately, receive higher benefits. Plus, Canadians would be allowed to keep money in their RRSP until the age of 75. Currently, Canadians are forced to convert their RRSP into a Registered Retirement Investment Fund (RRIF) at the age of 71, and then draw from it on an annual basis.
We can no longer rely on workplace pensions, which made up the lion’s share of retirement income some 50 years ago
It might make economic sense, but this idea doesn’t make sense for everybody – especially for women, and those in the lowest income bracket. Created 50 years ago, CPP was meant to replace 25 per cent of your retirement income. The rest of your retirement income was to come from a workplace pension and other sources. Today, not as many Canadians have access to workplace pensions. In addition, low interest rates have discouraged saving.
In 2018, a CIBC poll – Am I saving enough to retire? – found that the vast majority of Canadians didn’t know if they had saved enough, and one third of those, between the ages of 45 and 64, had nothing saved for their retirement – counting on government benefits to pay their dayto- day costs.
In the 1960s, less than 40 per cent of women were in the workforce, and most depended on their spouse’s pension. Today, more than 80 per cent of women are in the labour force. Many live alone, and rely on their own savings. Women work more part time jobs and are paid less in the same roles. Women also live longer, and require more money in their retirement. By deferring these benefits, it puts those women in a very vulnerable position.
Individuals have to focus on private savings, and can no longer rely on workplace pensions. Young people need to start saving money in their 20s, and make regular deposits into a Tax Free Savings Account (TFSA) or RRSP.
In the meantime, leave the retirement age at 65, but offer incentives for Canadians to take their CPP later. Therefore, those who need it earlier can access it, and those who choose to keep working, will be rewarded later.
Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca