Poverty rates among Canadian seniors are rising and, although they remain among the lowest in developed countries, trends such as housing debt and dependence on private pensions could lead to problems ahead, according to a new report from the Organisation for Economic Co-operation and Development.
In spite of the red tape that getting money out of registered plans involves, there are good reasons to leave money in as long as possible or until there is no other good source from which to obtain funds. Find out more
Canada is bucking the trend of most OECD countries, where old-age poverty declined between 2007 and 2010. In Canada, by contrast, poverty rates among seniors increased by two percentage points during the period. The only other countries that saw increases were Poland and Turkey.
The OECD report released Tuesday suggested incomes provided to elderly Canadians through a combination of public and private means is not keeping pace with the growth of incomes among the working-age population.
Against this backdrop of growing poverty among seniors, the OECD notes that Canadian retirees rely heavily on private pensions compared to seniors in other countries because their incomes aren’t boosted to the same extent by government transfers.
Canadians over 65 rely on capital including private pensions for 42% of their incomes. This compares to an average of 18% in the other nations in the OECD, according to the report.
Meanwhile, living standards in OECD countries such as Hungary, Luxembourg, Belgium, France, Italy and Germany are buoyed by public transfers, which account for an average of 59% of the gross incomes of those over age 65. Canadian seniors get a much smaller contribution from public transfers — less than 39% of gross income.
The OECD report notes that private pensions in Canada tend to be “concentrated among workers with higher earnings,” which “in the next decades may lead to higher income equality among the elderly.”
The report also looked into “housing wealth” as a contributor to living standards in retirement, and found that some Canadian homeowners over age 65 were still paying a mortgage. The OECD found that about 70% of Canadians over age 65 own their own homes, and, in 2011, about 6.5% of Canadian homeowners in that age group were repaying a mortgage.
Angel Gurria, secretary-general of the OECD, urged governments to “do more to encourage people to work longer and save more for their retirement to ensure that benefits are adequate enough to maintain standards of living into old age.”
He also encouraged governments to take policy action “to avoid rises in inequality among retirees and pensioner poverty.
The report looked at the national pension systems of the 34 countries in the OECD, as well as Argentina, Brazil, China, India, the Russian Federation, Saudi Arabia, and South Africa.
In keeping with the findings of other studies, the OECD report concluded that “middle earners” are most vulnerable to a large drop in their standard of living in retirement. They receive a smaller proportion of their working income once they retire than lower earners, and have less means than high earners to make up the shortfall.