The purchasing power of many retirees is declining, weighed down by inflation, among other things. This trend is not about to be reversed either, since fewer and fewer workers are benefiting from indexation of their future retirement pensions.
This is what emerges from a study by the Retirement Observatory published this summer in collaboration with the Quebec Association of Public and Parapublic Sector Retirees (AQRP), entitled The effects of deindexation of pensions on the financial situation of retirees.
In 2020, approximately 45% of defined benefit plan members in Canada, whether public or private, contributed to a plan that did not provide for any indexation based on the cost of living. In Quebec, the situation is not much better. The proportion of defined benefit plan members entitled to a partial or total increase in their pension based on inflation fell from over 60% in 1994 to less than 25% in 2020. The decline was particularly pronounced at the turn of the 2000s, and the trend has continued.
The author of the study, Riel Michaud-Beaudry, examined the consequences of this stagnation of benefits on certain profiles of retirees. He shows that those who benefit from a non-indexed pension must tighten their belts a little more each year until their death, despite the increase in certain benefits such as the Old Age Security pension.
“This confirms the comments we receive from our members, that their income is seriously eroded by inflation,” commented the provincial president of the AQRP, Paul-René Roy. He added that many retirees “have difficult choices to make to make ends meet.”
Many workers do not benefit from a pension plan through their employer and instead save in a registered retirement savings plan, an RRSP. Mr. Michaud-Beaudry detailed the case — fictitious, but representative of these people — of a single retiree. “Celebrating her 65e birthday in 2020 and deciding at that time to collect her QPP pension, she must face the decrease in the value of her investments in 2022 and high inflation in the early 2020s. This situation means that her assets are squandered when she is 86 years old, rather than 92 years old in an ideal scenario without an economic crisis or high inflation,” he wrote in his report.
“In this kind of situation, pre-retirees often delay the moment of final retirement,” emphasizes the research professional in an interview with The Duty. “In her case, she has to delay her retirement by four years to have money until age 92, as planned in her financial plan.”
Under the viable income
As for the income of retirees who live only on public benefits from the Quebec Pension Plan (QPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), it fortunately increases in line with the Consumer Price Index (CPI). “However, public plan beneficiaries are not immune to price increases higher than inflation for certain components of the CPI, which has been the case for transportation, energy and food in recent years,” the study points out.
The AQRP also points out that these retirees must live on a low income. Mr. Michaud-Beaudry calculates that a single woman who retired at age 62 in 2017 without a pension plan or savings must live on an average annual income of $24,715.
“According to the calculations of the Institute for Socioeconomic Research and Information, it takes at least $30,000 per year to have a relatively decent financial situation,” recalls Paul-René Roy, who is calling for an increase in the OAS and the GIS.
There is some hope in sight in this regard. Federal Bill C-319, which is still making its way through Parliament, proposes to increase the Old Age Security pension by 10% for people aged 65 to 74. The increase has already taken place for seniors aged 75 and over.