“This is the first generation in which two thirds of working Canadians don’t have any access to a workplace pension … which is why we are so invested in improving the CPP. There really is no other option at this time.” – Susan Eng
By John Devine
The provision of adequate retirement income, mostly from defined benefit pension plans, has seen senior poverty rates decline since pensions were first introduced generations ago.
However, with the collapse of the traditional pension, mostly in the private sector, retirement experts are warning that poverty rates among seniors will spike, reversing those gains.
In fact, that’s already happening, Susan Eng, vice president for advocacy at the Canadian Association of Retired Persons (CARP), told ARIA in a recent interview, citing a new survey from the Organization for Economic Development and Co-operation (OECD) that showed senior poverty rates in Canada increasing more than two per cent.
“The politicians will tell you, and it is true, that we have improved senior poverty rates in the last couple of decades, taking it down from double digits to about 5.5 per cent a few years ago. But that has now gone back up to 7.2 per cent,” laments Eng.
“The only way you can feel good about our 7.2 per cent poverty rate is to say it’s worse out there … the (OECD) average is 12.8 per cent. It’s not really anything to brag about.”
Canada’s seniors total about 5.4 million people, says Eng, and about 388,000 of this group are living in poverty.
The OECD report says it could get worse, with millions of boomers either at or nearing the traditional retirement age, and the current pension system unable to stem the tide; more than 60 per cent of Canadians lack an occupational pension, personal savings, on average, aren’t enough and public income supports are deemed insufficient.
“It’s better than what it could be, but frankly there is a lot that needs to be done,” says Eng, adding that for seniors, poverty is more than an abstract term. “It’s not like we are talking minor inconveniences here – these are people who are making the choice between paying for the drugs they need, or the heat.” A number of studies point to the likelihood of increasing senior poverty rates resulting from inadequate retirement income; a National Institute on Retirement Security report, The Pension Factor 2012: Assessing the Role of Defined Benefit Plans in Reducing Elder Economic Hardships, says that in American senior households, rates of poverty were nine times higher for those lacking a defined benefit pension.
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Canada’s public pension system, comprised of the Canada Pension Plan (CPP), Old Age Security (OAS), and the Guaranteed Income Supplement, does a pretty good job at replacing income for low-wage earners, and Canadians with high income have the means to take advantage of retirement savings programs like RRSPs and TFSAs. It’s the middle group, those earning between $30,000 and $100,000 that will be in retirement trouble, Eng and other financial experts maintain, as they have little left over once taking care of bills and other demands on their income.
For this middle-income group, Eng says either they find a way to save more, or retirement income needs to be bolstered, preferably through the enhancement of the CPP.
“The other issue coming up now with pre-retirees … is that in addition to not having saved enough, any savings they did have were devastated in the 2008 crash. It’s a very troubling time for a lot of people, and there is really no easy way to catch up at this point.”
Along with inadequate access to retirement income, CARP, says Eng, is seeing older people take on riskier investments, record amounts of debt, and going into bankruptcy.
“It is a vicious circle and it is making people very uneasy about their retirement prospects.”
The amount of debt Canadians are prepared to carry into the retirement years is another break with the past, as it used to be assumed that retirees would carry very little debt. CARP polled its members as to why they were taking on debt, and found the main reasons were to pay expenses, including unexpected medical costs, and to financially assist their children.
“It’s not as if they were taking a luxury vacation,” says Eng.
Adding another element of concern to the overall retirement income gap is the trouble older people have either keeping a job or getting back into the workforce, says Eng, continuing that a streak of ageism persists in Canadian society.
“CARP was successful in getting the federal government to remove the last vestige of legislated age discrimination in mandatory retirement rules … but that alone won’t remove workplace age discrimination that still persists.”
Still, the workplace has more older workers than in previous years, she adds.
“The number of older people still in the workforce has doubled over seven years, from 300,000 to 600,000 at a time you would expect that many people would not even be in the workforce.”
CARP’s preferred solution mirrors that of others, including politicians, labour leaders and pension experts: enhance CPP benefits.
“This is the first generation in which two thirds of working Canadians don’t have any access to a workplace pension … which is why we are so invested in improving the CPP. There really is no other option at this time.”