A large proportion of middle-income Canadians nearing retirement are at risk of sliding into poverty. And this problem is expected to balloon in the coming decades as more people retire without a company pension or adequate savings, according to a report commissioned by the Broadbent Institute, a think-tank based in Ottawa. The report, entitled We’re facing a wave of seniors living in poverty – and we’re not ready, was conducted by Richard Shillington, a pension consultant with Tristat Resources in Ottawa.
Roughly half (47%) of Canadian couples approaching retirement (ages 55 to 64) have no employer pension. And fewer than 20% of middle-income Canadians have saved enough to fund their retirement, even when supplemented with government benefits and the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP).
“It’s a crisis, not just for these people individually,” says Rick Smith, executive director of the Broadbent Institute. “It’s an impending problem for the Canadian economy.”
Within a decade, more than 20% of Canada’s population will be over age 65. Already, slightly more than 700,000 seniors live below the poverty line, Smith adds. Increasing that number would threaten the national economy.
That Canadians are struggling with their savings goals and burdened by rising household debt levels is well known. But the situation is particularly dire for people without employer pension plans.
Among middle-income Canadians in the 55- to 64-year-old demographic cohort who don’t have an employer pension plan, barely 15%-20% have saved anywhere near enough for retirement, according to the report. Meanwhile, 50% of Canadians nearing retirement have enough savings to last for only one year, while fewer than 20% of Canadians in this cohort have enough savings to last at least five years.
With less than 10 years left to save for retirement, these individuals will be hard-pressed to generate enough savings to avoid a dramatic drop in income.
Income trends indicate that the poverty rate for seniors, which has risen to 11.1% in 2013 from a low of 3.9% in 1995, will continue to climb. Seniors living alone are particularly at risk; 24% of men and 28% of women living alone are living in poverty, according to Statistics Canada. (StatsCan uses the low-income measure [LIM], which indicates the proportion of people who have after-tax income that is less than half of the median after-tax income of comparable families.)
Smith says that the available savings vehicles, such as RRSPs and tax-free savings accounts, clearly are not doing the job for middle-income Canadians. And, he adds, the time is ripe for the government to step in to begin alleviating the poverty crisis for seniors. The institute is calling for an enhancement to Canada’s old-age security (OAS) and guaranteed income supplement (GIS) programs.
The guarantee levels for these supplements are falling behind, according to the report. For example, single seniors now account for about 60% of median incomes in that demographic, compared with 76% in 1984. And the OAS/GIS maximum benefits for senior couples have dropped to 40% of median income from 53%.
The gap between the OAS/GIS guarantee levels and the LIM for 2015 is about $5,600 for single seniors and $4,700 for couples. Seniors need to fill this shortfall through the CPP/QPP, private pensions and savings.
While the Ontario government has tried to address this issue with the proposed Ontario Retirement Pension Plan, Smith says, a national response is needed. The federal government has deferred its decision on whether to bolster the CPP/QPP while consulting with the provinces. Smith and his colleagues argue that bolstering must be expedited: “We’re talking about a revised structure to allow Canadians the chance to save better.”
The federal Liberals’ promise to boost the GIS by 10% is a step in the right direction, Smith says, but it is not enough. Such a move would lift only one in seven poor seniors out of poverty.
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