Will pandemic debts impact Canadians’ retirement plans?

New research from the Canadian Institute of Actuaries (CIA, and no, not that CIA) suggests that many Canadians worry that debt taken on during the pandemic will delay – or indefinitely postpone – their plans for retirement.

The research, carried out by Ipsos Public Affairs, is covered in a recent story in the Toronto Sun.

The research found that “with Canadians earning less” during the pandemic, “increases in debt followed suit,” the newspaper reports, quoting another media outlet, Blacklock’s Reporter.

“The report reveals 25 per cent of respondents took on additional debt due to the pandemic with higher percentages seen among students and self-employed Canadians, both at 33 per cent. Also exposed were those who rent, 34 per cent,” the article notes.

How much did incomes drop during the pandemic?

According to the Sun story, citing the research, one third of the 1,529 people questioned by Ipsos reported a pandemic-related income drop. A further 69 per cent say “COVID has changed their retirement timelines.”

While the average retirement age, according to Statistics Canada, is 65, the research found that 40 per cent of those surveyed “do not know when they will retire, and a further 14 per cent state they do not expect to ever retire,” the Sun reports. Four per cent of those surveyed said they expect they will have to work beyond age 71, the article adds.

The article points out that the large percentage of “don’t know” answers to when retirement will occur “reflects the fact some Canadians are not engaged in work outside the home.” The largest segment of those polled saying they didn’t know when they would retire are “students (65 per cent), homemakers (69 per cent) and those who are disabled (62 per cent),” the article notes.

The article concludes by indicating that CIA estimates the average Canadian needs $900,000 worth of savings to retire by age 65.

These conclusions are interesting, particularly since other research has found that some Canadians have been saving like crazy during the pandemic, due to having less things they can spend their money on.

The Globe and Mail reports that “Canada’s stockpile of savings earlier this year was $280 billion bigger than before the pandemic,” citing research from RBC Economics.

It’s not known, the article adds, what Canadians plan to do with this cash stockpile. Retirement savings is not mentioned specifically as a destination for this cash, at least in this article.

So, some of us are having to borrow to make ends meet, while others are sitting on a pile of cash.

Those with extra cash should take note of the struggles of those without it. The folks that are pushing retirement into the future are doing so because (we can assume) they are carrying too much debt and thus not putting as much away for retirement as they would like. These folks will have to get back into retirement saving when they can, but understandably they can’t do much at this point.

If you are sitting on cash, consider putting at least some of it away for retirement. This is especially important if you don’t have a retirement savings plan at your place of work. Folks in this situation have to rely on themselves to fund their future retirement income.

Don’t have a plan at work? Consider the Saskatchewan Pension Plan, a “made in Saskatchewan success story” that has been helping people save for retirement for 35 years. SPP can take your hard-earned savings and invest them for you in a low-cast, professional way. Better, when it’s time to finally exit the stressful world of work, SPP can turn your invested savings into a stream of income. Check them out today!

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Would people be better off if they worked a little longer, and collected their retirement benefits a little later?

A new study from the Canadian Institute of Actuaries (CIA) called Retire Later for Greater Benefits explores this idea, and proposes a number of changes, including moving the “target eligibility age” for the Canada Pension Plan and Quebec Pension Plan to 67 from 65, while moving the earliest age for receiving these benefits from 60 to 62. As well, the CIA’s research recommends that the latest date for starting these benefits move from 70 to 75.

Old Age Security (OAS) would see its target age move to 67 from 65. For registered pension plans (RPPs), the CIA similarly recommends moving the target retirement age to 67 from 65, and the latest retirement date to 75 from 71.

Why make such changes? An infographic from the CIA notes that we are living longer – a 65-year-old man in 2016 can expect to live for 19.9 years, while a woman can expect 22.5 more years of living. This is an approximately six-year improvement versus 1966.

So we are living longer, the study notes, but face challenges, such as “continuing low interest rates, rising retirement costs, the erosion of private pensions and labour force shortages.”

Save with SPP reached out to the CIA President John Dark via email to ask a few questions about these ideas.

Is, we asked, a goal of this proposal to save the government money on benefits? Dark says no, the aim “is not about lowering costs to the government. The programs as they are currently formulated are sustainable for at least 40 to 75 years, and we believe this proposal will have minimal if any implications on the government’s costs.

“We are suggesting using the current increments available in the CPP/QPP and OAS to increase the benefits at the later age.” On the idea of government savings, Dark notes that while CPP/QPP are paid for by employers and employees, OAS is paid directly through government revenue.

Our next question was about employment – if full government pension benefits begin later, could there be an impact on employment opportunities for younger people, as older folks work longer, say until age 75?

“We’re not recommending 75 as the normal retirement age,” explains Dark. “We are recommending that over a phase-in period of about 10 years we move from a system where people think of ‘normal’ retirement age as 65 to one where 67 (with higher benefits) is the norm.

“The lifting of the end limit from 71 to 75 is at the back end; there are currently those who continue to work past normal retirement and can continue to do so even later if they choose,” he explains. “Current legislation forces retirees to start taking money out of RRSPs and RPPs at age 71 – we think this should increase to 75 to support the increasing number of Canadians who are working longer.”

As for the idea of younger workers being blocked from employment opportunities, Dark says “if we had a very static workforce this might as you suggest cause a bit of blockage for new entrants, but as we say in the paper, Canada has the opposite problem.

“Many areas are having a difficult time finding workers,” he explains, adding that “in the very near future a great many baby boomers will begin to retire. We think allowing people who want to remain in the work force can help with that.

“It’s important to remember that if you have planned retirement at 65 this proposal won’t prevent you from doing that except that OAS wouldn’t be available until 67 instead of 65 (and we expect the government would explore other options for supporting vulnerable populations who need OAS-type support at earlier ages).” Dark explains.

Would starting benefits later mean a bigger lifetime benefit, and could it help with the finnicky problem of “decumulation,” where retirement savings are turned into an income stream?

“Under our proposal,” Dark explains, “people could work just a little longer and get higher benefits for life. By itself that doesn’t make decumulation any less tricky – but perhaps a little more secure.

“For many people in defined contribution (DC) plans who have no inflation protection, longevity guarantees, or investment performance guarantees from an employer, using your own funds earlier and leaving the start of CPP and OAS to as late as possible can help provide some of the best protection against inflation for at least part of your retirement income,” he adds. And, he notes, because you waited, you will get a bigger benefit than you would have got at 65.

Finally, we asked if having a longer runway to retirement age might help Canadians save more for their golden years.

“Clearly by having a longer period of work you have more opportunity to accumulate funds, and by providing more security of retirement income it will help as well,” Dark notes. “We also know that Canadians are already starting their careers later in life – getting established in their 30s rather than their 20s, for example – and need that longer runway anyway.

“Overall, to me the most important word in the report is `nudge.’ If we can get people to think about retirement sooner and get governments to act on a number of areas that we and others have outlined we hope to improve retirement security for Canadians. This is just the start of a journey that will have lots of chapters.”

We thank John Dark, as well as Sandra Caya, CIA’s Associate Director, Communications and Public Affairs, for taking the time to speak with Save with SPP. Some additional research of the CIA’s can be found on Global News Radio, BNN Bloomberg and the Globe and Mail.

Even if the runway towards retirement age is lengthened, it’s never too early to start saving for retirement. If you don’t have a workplace pension plan, or do but want to augment it, the Saskatchewan Pension Plan may be a vehicle whose tires you should consider kicking. It’s an open DC plan with a good track record of low-cost investment success, and many options at retirement for converting your savings to a lifetime income stream.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22