According to Statistics Canada projections, someone reaching age 65 in 2022 will live an average of 24 years, or up to age 89. In 1966, when the Quebec Pension Plan (QPP) was launched, this horizon was more like 15 years. Our population is aging, but those who are classified as seniors, somewhat arbitrarily, have gained many years ahead of them.
Posted yesterday at 3:00 p.m.
Those we call our elders also arrive at advanced ages with a heritage that has nothing to do with that of previous generations. In 1999, the median wealth of the population over the age of 65 in Canada, including the value of all financial and non-financial assets minus debts, was $302,500 (in constant 2019 dollars); that figure nearly doubled to $543,200 in 2019, according to Statistics Canada. Our seniors are also more and more numerous to hold a job after the age of 65, which testifies to their economic commitment.
Even if the fact remains that nearly one in 10 seniors must live close to the poverty line, and that we have to be concerned about it, we do not often notice the economic progress that has been made.
In fact, I am often surprised by the enormous gap between the facts, which paint a very positive portrait of the evolution of the economic conditions of our seniors, and on the other hand the public debate fueled by the political market. While we must certainly continue to support our most vulnerable seniors, our discussions of public policies concerning seniors tend to put the spotlight on the social safety net, certainly an important issue, to leave discussions on issues that are on the horizon for many and can lead to a significant drop in standard of living in retirement – without necessarily leading to poverty. The proposed solutions to these issues remain limited.
Despite the forthcoming arrival of generations of retirees with target benefit plans which will temper the ongoing disappearance of defined benefit plans in the private sector, several generations will in the meantime reach retirement with large amounts accumulated in contribution plans. fixed income, RRSPs and TFSAs. However, these seniors are largely left to their own devices with regard to the disbursement of these sums in a context where the risk of longevity – that of outliving their savings – awaits them. In surveys we conducted among Canadian retirees, less than 10% of this population had converted part of their savings into a life annuity or planned to do so. Moreover, the level of knowledge of life annuities is very low and tax considerations are poorly understood.
Until before the pandemic, nearly 40% of Quebecers becoming eligible for the QPP retirement pension chose to start payments at age 60, despite a permanent penalty of 36% on their pension. For each year of postponement of the pension for a worker, it increases by more than 10% until the end of his days. Therefore, against the waiver of benefits at age 60 for one year, equivalent to an investment that cannot be spent, the person deferring his pension will benefit from a return, indexed to inflation, of more than 10%, without risk being given the good behavior of the regime. Hard to find better. Although several considerations may make this deferral not always ideal, the fact remains that encouraging deferral for some would do much more in terms of standard of living than other income support policies. .
Paradoxically, there is a lack of solutions to deal with the financial risks associated with the loss of autonomy while this term has been on everyone’s lips since the start of the pandemic.
Although the projections suggest a future lack of public care, and therefore significant financial risks for our seniors, these remain unknown. Seniors concerned about these issues in financial terms have only a few solutions to protect themselves against these risks. According to our studies, less than 10% of 50 to 70 year olds have an insurance policy against this risk, and the number of suppliers of these products has continued to decline in recent years. How not to see in this finding a missed opportunity to finance better management of the loss of autonomy?
A paradigm shift seems to be needed. It may be time to give more tools to our (future) seniors so that they can take better advantage of their financial assets and derive the best possible standard of living for their old age. I am also inclined to believe that financial education should be required in order to take into account the variety of circumstances and preferences and to aim for greater financial autonomy for seniors.
* Pierre-Carl Michaud is co-holder of the chair on intergenerational economic issues and director of the Institute for Retirement and Savings