Oct. 14: BEST FROM THE BLOGOSPHERE

October 14, 2024

Starting public pensions earlier might alleviate senior poverty: report

At a time when many retirement experts are extolling the virtues of starting government pensions later in life – in order to get a bigger monthly amount – a new report suggests starting them earlier may be a way to reduce senior poverty.

According to an article in The Financial Post, a report from the Global Risk Institute suggests that “lowering the early eligibility age (for government pensions) can help one group in particular: workers with lower incomes.”

The Institute’s report says starting pensions earlier than 65 “can put lower-income seniors in a better place financially and reduce the poverty rate among seniors as well.” In Canada, you can begin receiving Canada Pension Plan (CPP) payments as early as age 60, the article notes.

“The report , which examined two Canadian pension reforms that took place in the 1980s, which dropped the early eligibility age (EEA) to 60 from 65, concluded that lower-income retirees have financially benefited by claiming their pensions earlier,” The Post reports.

Those who start their CPP at 60 will receive a pension that is 36 per cent smaller than those who start it at 65, the article explains. Waiting until after age 60 to claim your pension means your future pension increases by “0.7 per cent each month, or 8.4 per cent per year,” the article adds.

“But lower-income retirees have a shorter life expectancy than retirees with higher incomes, which means they might not live long enough to reap those benefits. They might also require a boost in funds sooner just to accommodate the rising cost of living, which means claiming early isn’t just the smarter financial decision; it’s often the only financial decision they can afford to make,” The Post reports.

Even Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing, a proponent of waiting until you are 70 to collect CPP, agrees that if you need the money when you’re 60, it’s “a no brainer” to start taking it then, the article reports. “MacDonald, who has long advocated for Canadians to delay claiming their pensions, authored a report earlier this year that noted Canadians can receive 2.2 times the monthly pension at age 70 than if they claimed them at age 60,” The Post reports.

Interestingly, the “penalties” (early retirement reductions) for Canada’s pension plan are “lower than in other countries, such as the U.S., making the choice much more attractive for lower-income Canadians who need the money sooner,” The Post notes.

The article concludes by noting that some OECD countries have looked at “increasing the age of retirement” by two to five years, with the hope of keeping older workers on the job. However, the article notes, “some studies have shown these reforms caused a `spillover’ effect on other social programs, such as employment or disability insurance, and made some groups more vulnerable to poverty.”

Let’s also keep in mind that the Canada Pension Plan’s maximum benefit for 2024 is only $1,364.60 at age 65 – while the average CPP payment is $816.52. If you don’t have a workplace pension plan, you’ll need to put away money on your own to bolster that future, rather meagre pension. Why not take a look at the Saskatchewan Pension Plan. It’s open to any Canadian who has registered retirement savings plan room. You decide how much to contribute to SPP, and we take on the heavy lifting of investing and growing your savings. At retirement, you can choose among options like collecting a monthly lifetime annuity payment or the more flexible Variable Benefit.

Check out SPP today!

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The Financial Post

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