Income inequality weighs on Canadian retirement planning

Canada has dropped from the top ten in an annual ranking of countries

Income inequality weighs on Canadian retirement planning
Despite Canada’s relative financial stability, income inequality in the country is making it hard for many to save for a secure retirement.

That was one of the major findings in the recently released Natixis Global Retirement Index, a global survey of 43 countries that ranked them in terms of retirement well-being. In the latest edition of the index, which is in its fifth year, Canada fell one spot to 11th place with an overall score of 76%.

According to the report, the levels of income inequality have increased compared to last year. The rising inequality has affected material wellbeing in the country, which is one of four scoring categories assessed in the overall retirement index.

“In the income inequality indicator, Canada ranks 21st, which … indicates that many Canadians are missing out on economic growth and may be struggling to save for a secure retirement as a result,” Natixis said in a statement. “Canada also registered a decline in indicator scores for employment and income per capita compared to last year.”

But it’s not all bad news: offsetting the decline in income indicators are constructive assessments in financial stability. A favourable tax pressure indicator score (38%), coupled with an increase in the five-year average of interest rates — which correlates positively with wealth among retirees — has put Canada within the top 10 countries in terms of financial stability. In terms of governance, Canada scored well, ranking ninth among all the countries surveyed.

“But its old-age dependency ratio, which measures the proportion of people age 65 and older to those of working age, has increased, which stresses the government programs that support retirees,” the statement said.

Natixis also noted increasing pressure on pension managers, who face funding challenges from increased lifespans of plan members and a long bout of low interest rates. Citing data from the World Economic Forum, the firm said the world’s six largest pension saving systems, including Canada, are forecast to contend with a US$224-trillion gap by 2050.

With the looming threat of unfunded liabilities, there’s been a sea change in the type of retirement plans offered by employers. More companies are freezing pension plans and shifting to defined-contribution plans, effectively off-loading the burden of retirement funding onto employees.

Public plans are also becoming increasingly inadequate. “In a survey of investors conducted by Natixis earlier this year, 78% feel that funding retirement will fall increasingly to them rather than to the government,” the firm said.

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