December 18, 2009

CANADA: Lower living standard looms for many high-income Canadians

. TORONTO, Ontario / The Globe and Mail / Report on Business / December 18, 2009 Government programs, other pension options will fall short for ‘significant minority' of middle, upper-income retirees, Ontario report says By Janet McFarland A “significant minority” of middle and upper-income Canadians will see their living standards decline in retirement because government pension programs do not replace a large proportion of their pre-retirement incomes while other savings and pension options are not doing a good job of making up the gap, an Ontario report on Canada's pension system warns. Ontario Finance Minister Dwight Duncan REUTERS A report commissioned by the Ontario government from Ottawa-based pension consultant Bob Baldwin concludes the majority of people who are currently elderly in Canada have achieved a reasonable level of income in retirement compared to their pre-retirement incomes. “However, for a significant minority of elderly who had moderate to high earnings before retirement, retirement may have resulted in a noticeable decline in living standards,” the report says. The Ontario report will be tabled at a meeting of federal and provincial finance ministers in Whitehorse Friday, along with a separate report commissioned by the federal government from tax expert Jack Mintz. The ministers are gathering to discuss options to improve pension coverage for Canadians, especially the growing majority who do not have workplace pension plans. Ontario Finance Minister Dwight Duncan said in an interview this week the Ontario government decided to seek a second view on Canada's pension problems from Mr. Baldwin “so we get a couple of different points of view on this.” Similar to Mr. Mintz's report, Mr. Baldwin's study also offers no specific advice on policy prescriptions or proposals for a new national supplemental pension plan, but instead presents information about the state of pension financing facing different groups in Canada. But it does warn that if nothing is changed, some people retiring in the future may not have as much retirement income as they could have under alternative models. “The status quo is an option,” the report says. “However, it is an option that may leave a significant minority of people with moderate to high earnings facing a decline in their standard of living in retirement, and force many people to rely on sub-optimal pension and retirement savings institutions.” The report says there has been a sharp decrease in poverty among the elderly in Canada since the 1970s, with the median real income of elderly couples in Canada increasing by 55 per cent between 1976 and 2007, and the income of elderly singles growing 79 per cent. But it also notes much of that improvement was achieved by the mid-1990s, and the period since then has seen stability or mild deterioration in income levels. The report adds that if there aren't future adjustments to key pillars like Old Age Security and the Guaranteed Income Supplement, the programs will be “less useful” in preventing poverty in the future. And it says the employer pension plan “pillar” of the retirement system “faces serious challenges.” The report says workers today are less likely to be covered by employer pension plans, while their retirement periods are growing due to an aging population. And it says there has not been an offsetting increase in personal savings to make up for the decline of company pensions, which Mr. Baldwin identifies as “a very important issue that needs further study.” [rc] © Copyright 2009 CTVglobemedia Publishing Inc.