Canada’s retirement income system needs a refit

Study highlights barriers and misfits that must be addressed to help adult Canadians prepare for life after work

Canada’s retirement income system needs a refit

Canadians today face many challenges on the road to retirement: an aging population, rising life expectancies, lower wages, lower interest rates, stressed public health and pension plans, and so on. And according to the National Institute of Ageing (NIA) based at Ryerson University, the country’s retirement system must be updated accordingly.

“We’re living longer, spending more time in older age without working income, and with diminished investment return prospects,” said the authors of the NIA report Improving Canada’s Retirement Income System. “Yet, our retirement income system in broad strokes still functions on many of the assumptions – good and bad – that we had decades ago.”

Referring to the Melbourne-Mercer Global Pension Index (MMGPI), the report noted that Canada ranked ninth out of 37 countries assessed in 2019, with a rating of 69 and a ranking of B. The MMGPI highlighted three points of improvement:

  • Improve pension coverage by developing attractive products for workers without workplace pension plans;
  • Increase savings rates for middle-income earners; and
  • Boost labour force participation rates at older ages as life expectancy rises

“Canada has already begun to act on the three MMGPI recommendations,” the paper noted, acknowledging developments such as expansion in Canada Pension Plan/Quebec Pension Plan coverage funded by rising contribution rates; efforts to augment retirement savings and pension plans offered to private-sector workers; and a growing proportion of Canadians working past the age of 65.

But there’s more to be done. In particular, the report highlighted four challenges that must be addressed:

  • A continued lack of workplace pension coverage and efficiency – aside from the fact that almost 12 million out of 19 million working Canadians are still not members of a Pillar 2 registered pension plan, the report noted that workplace savings vehicles can be improved to deliver better outcomes to Canadians. It cited one proposal from the C.D. Howe Institute to allow group TFSAs in the purchase of life annuities.
  • A misfit between individual Canadians’ investment abilities and responsibilities – while regulators are working to protect private citizens preparing for retirement, the report suggested more should be done. It noted academic research suggesting that conflicts of interest, lack of skill, and issues with temperament may hold many financial advisors back from delivering the services that their clients pay for.
  • Barriers to obtaining longevity insurance – legislative and regulatory barriers prevent individual Canadians from putting off collecting their OAS/CPP/QPP pensions past 71 and taking advantage of variable longevity-risk pooling arrangements. The report acknowledged the government’s proposals to allow the purchase of Advanced Life Deferred Annuities and Variable Life Payment Annuities through registered plans, though it will take further efforts “to legally activate these changes.”
  • Lack of integrated political decision-making, regulation, and retirement income system research – The report cited coordination issues such as the federal government’s reversal of the previous government’s decision to gradually increase the official retirement age, fragmentation in retirement-system policy research and decision-making, and risks of low-income workers facing reductions in their income-tested GIS after being encouraged or required to save for retirement.


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