CIBC report admits retirement crisis and urges more solutions for savings

"But as they say, recognition that there is a problem, and getting a handle on its magnitude, is the first step towards a cure."

Ottawa (25 Feb. 2013) - Six million Canadians will have a drop of at least 20 per cent in living standards as they retire, says a new report issued by the CIBC.

The six page report, Canadians’ Retirement Future: Mind the Gap, echoes an April 2011 study published by Michael C. Wolfson, saying "middle-earning Canadians born between 1945 and 1970 will experience a drop in living standards of at least 25 per cent when they retire." Equally concerning to Wolfson were "the phased-in options under discussion to improve Canada/Québec Pension Plan (CPP/QPP) benefits would have modest effects, so governments will have to look at more ambitious and novel reforms than the ones currently under consideration."

The CIBC states that over several decades savings rates have declined from 15-20 per cent to a mere four per cent today. The drop hasn't been confined to people approaching retirement either. The statistics show a similar decline in the 30-45 age group as well as in the 45-64 group. In fact, all age categories have seen this kind of decline. It's not just a matter of people saving less, it is also about how living standards continue to escalate.

With continuing rising living costs, stagnant wages, growing unemployment and household debt and reduced government assistance, Canadian families are struggling to survive.

The pension picture does not help the situation. CIBC reports that "workforce is covered by a registered pension plan, down from 37% in 1992. Moreover, of those pension plans, fewer now offer workers the certainty of a defined benefit in their post-working years, with that trend likely to continue given that many employers have left defined benefit plans in place for existing workers, but offer defined contribution plans for new hires."

The problem will only become worse as those born in the 70s and 80s begin to retire.

The report concludes saying "None of this is set in stone. Policymakers, individual Canadians, and their financial advisors, have time to set a new direction. The issues will surround determining where the added savings will come from, how quickly these can be increased without too much of a dent to current economic growth, and where the funds should be invested. But as they say, recognition that there is a problem, and getting a handle on its magnitude, is the first step towards a cure."

It is an interesting conclusion, given the Canadian Bankers Association's refusal  to endorse the Canadian Labour Congress' call for increased contribution to the CPP, in favour of the poorly received federal Pooled Registered Pension Plans (PRPPs).

Perhaps this is a "first step" in recognizing the problem and the solution.

More information: 

Canadians’ Retirement Future: Mind the Gap

Michael C. Wolfson: Projecting the Adequacy of Canadians’ Retirement Incomes Current Prospects and Possible Reform Options


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