There is evidence that a good number of Cana-dians can afford to take early retirement, are enjoying their freedom and have no intention of returning to work.

What’s more, they typically have enough pension income to replace about two-thirds of what they were making before retirement and, contrary to public perception, few take up self-employment after retiring.

In a recent report on young pensioners, defined as those who start collecting pensions while in their 50s, Ted Wannell, with Statistics Canada’s labour and household surveys analysis division, says about one in five Canadian workers starts collecting a pension before age 60. Many were able to quit work because they had good pension plans that allowed them to take early retirement at age 55.

Wannell says deficit-fighting in the public sector and downsizing in the private sector in the mid-1990s led many organizations to offer early-retirement incentives in the form of lump-sum payments or reduced early-retirement penalties. These measures played a role in creating a peak in early retirements at the time, as the early pension take-up rate has since dropped.

Wannell notes that there is still a spike in take-up rates at age 55, although it has been tailing off for men to 5% in 2003 from 5.4% in 1995 but increasing for women to 4% from 3.3% in the same period.

Many public-sector pension plans allow employees to retire without benefit penalties at age 55, he adds, if they have completed a minimum term of service, typically 30 years. At age 55, pension take-up rates peak. The rate then dips for ages 56 to 59 and does not pass the age-55 peak until age 60.

Almost two-thirds of the income of young pensioners comes from retirement pensions. Less than one-quarter comes from employment, and only 2% is generated by self-employment (see table). The small percentage of income from transfer payments partly reflects the fact that public pension plans are not available until later — age 60 for the Canada Pension Plan and age 65 for old-age security.

Over the long run, Wannell says, transfer payments such as employment insurance, social assistance and disability benefits have declined in importance for young pensioners. Market income — mainly investment income and RRSP withdrawals — has also declined.

Wannell also says women were more reliant on benefits from registered pension plans for each year from 1996 onwards, and there is still a considerable gap between women and men.

The idea that people who take early retirement often continue to earn an income from self-employment also seems to be contradicted by Wannell’s study.

“The retired organization man hanging out his shingle as a consultant is a popular image in the media, but the reality is different,” he says. Less than one in 10 early pensioners earned self-employment income in the year following their retirement, he says. Non-pensioners were far more likely to earn self-employment income than pensioners.

Wannell says previous studies of early retirees reported high levels of education and pre-retirement salary. His report found dramatically higher pre-pension earnings for young pensioners. The median salary for men was more than $60,000 in 2004 dollars, compared with about $40,000 for those not collecting a pension the next year.

Earnings of women were generally lower than those of men, but Wannell says the gap between pre-pensioners and other workers was even greater. Since 2001, women retiring the subsequent year earned more than men continuing in the workforce. Despite loss of employment earnings, the median total income of women taking a pension in their 50s remained at least as high as the total income of working counterparts, he says.

Among men, pensioners had a lower median income than continuing workers. The gap doubled to 14% in 2004 from 7% in 1991, as the real income of pensioners stagnated, while it increased by 6% for those who continued working.

Wannell’s report has implications for policy-makers worried about labour shortages when baby boomers retire. “Although the data show a recovery in re-employment among early pensioners since the mid-1990s,” he says, “re-employment rates have remained flat since in this decade.”

He concludes it is unlikely early pensioners will be a growing source of labour in the years to come. IE