Canadians are leaving pension money on the table.
More than 15 years ago, my then-father-in-law shared an important decision with me. He would start collecting from his Canadian Pension Plan at age 60. Although his monthly benefits would be reduced, he doubted his lifetime earnings would be better for waiting.
I found his slightly cynical gamble amusing. Today, he remains quite alive, and best I know, has no glaring health problems. It may well turn out he should have waited.
The National Institute on Ageing (NIA) believes governments have done too little to ensure Canadians make optimal, well-informed decisions about when they take out their pension. The NIA demonstrated this in their recent report, “Strengthening CPP/QPP for Better Outcomes — Two Evidence Based Reforms.”
The NIA says governments need to place a new mandate on pension administrators “requiring them to work in the best interests of CPP contributors and beneficiaries and prioritize participant outcomes.” There are reasons why the government may not have done this.
The more money paid out, the higher the pension returns and/or contribution levels will have to be. The program is easier to maintain if Canadians float along, making sub-optimal choices. Larger pension fund surpluses make Canada’s federal net debt appear lower, while reduced paycheck deductions lead to less worker dissatisfaction. For the party in power, that’s a win-win.
Besides, the idea of a public pension fund is that the government takes care of people who don’t take care of themselves. Empowering people to make the best choices is somewhat antithetical to a public pension plan anyway. Apart from, perhaps, lower management fees, the approach does nothing to benefit the individual they could not do for themselves.
Regardless, if ensuring Canadians have retirement income is a real goal, the NIA has made a good recommendation here. Canadians are missing out due to ignorance and shallow decision-making processes.
A 2019 Employment and Social Development Canada survey illustrated the problem. It found that 87% of Canadians said they “fully” understood the impact of the starting age on their monthly benefit amount. However, focus groups by ESDC found “very few clients actually know with any specificity.”
The government did little to help. “General program information related to the Canada Pension Plan Retirement Pension, available through all channels, is not sufficient to support clients’ optimal decisions with respect to their Retirement Pension,” ESDC noted.
People don’t know, can’t know, and, according to a 2023 survey by the NIA, only one in seven Canadians try very hard to know. Four in ten made no effort at all.
The NIA says if the average Canadian delayed benefits from age 60 to 70, they would more than double their monthly pension, amounting to an additional $100,000 of secure income over their lifetime. But, as it was for my former father-in-law, “loss aversion” motivates many people to claim early.
To partially address this problem, the NIA proposes that CPP and QPP offer a “pension-back” death benefit. This would pay the pensioner’s inheritors the difference between the participant’s cumulative amount and what they would have received had they claimed benefits at age 60. Although the pensioner may not see the money while they live, at least their next of kin won’t suffer from delayed pension benefits.
This pension reform can be done without legislation and can be adopted immediately. The youngest baby boomers will soon retire, and if Ottawa moves quickly, they can make better choices with better outcomes.
Lee Harding is a Research Fellow for the Frontier Centre for Public Policy.
