Two-thirds of Canadian households are setting aside money for retirement, taking advantage of either a registered pension plan, an RRSP or a tax-free savings account, Statistics Canada said Wednesday as it released the latest batch of numbers from the 2016 census.
Of 14 million households, 65.2 per cent made a contribution in 2015 — the most recent year for which data was available — to one or more of the three major savings vehicles, an apparent counterpoint to the prevailing narrative that too many Canadians take a cavalier approach to retirement.
Different generations took different approaches: Major income earners aged 35 to 54 were prone to make use of registered pension plans and RRSPs, while those younger than 35 and those older than 54 were more likely to contribute to a TFSA.
Or, in Statistics Canada’s words: “Participation in savings plans followed strong life-cycle patterns.”
1st time question on census
It’s the first time the census has probed the question, taking advantage of tax data to paint a more accurate picture of just how seriously Canadians take retirement planning — a picture which experts say has long been distorted by suspect data and aggressive investment marketing.
“I think things in general are still in pretty good shape when it comes to preparing for retirement,” said Fred Vettese, chief actuary at Morneau Shepell in Toronto.
“For the most part, when you look at middle-income Canadians they are saving. So one of the problems with the statistics is that they end up being misleading.”
Vettese said he’s particularly frustrated by the oft-cited national household saving rate, which landed at 4.6 per cent in the second quarter of this year, compared with 20 per cent in 1980.
“That’s the stat that people keep on harping on, and it has dropped a lot — but that household saving rate is a funny number.”
CPP savings not included
For starters, household saving doesn’t include Canada Pension Plan contributions — “for most people, you figure that their CPP contributions are savings for retirement,” he said — which means federal efforts to enhance the pension plan won’t change that figure “one iota.”
What’s more, Vettese said, the household saving rate deducts what retired Canadians might take out of their nest egg once it becomes a source of income.
“So, with an aging population and more people drawing an income then used to be the case back in the 1990s, obviously it’s going to look like people are saving less.”
Research compiled by actuary Malcolm Hamilton of the C.D. Howe Institute suggests that the rate of retirement saving for employed people has actually almost doubled in recent decades.
Surge in retirement saving
Hamilton’s data-crunching exercise — which sought to correct for household saving’s shortcomings — showed a surge between 1990 and 2012 in contributions to retirement savings plans, even as household saving dropped sharply. Over that 22-year period, contributions went from 7.7 per cent of earnings to 14.1 per cent.
“Some of that is public pension saving plans, so employers and employees are both putting money in,” said Vettese. “But some of that is actually people putting money into their RRSPs. And you also have to figure that some of the money in TFSAs will be used for retirement.”
% of Canadian households saving for retirement
|Age of major earner||RRSP||RPP||TFSA||All 3||Total|
|71 or older||4.0||1.6||43.7||9.4||45.6|
The numbers released Wednesday show a clear preference among younger workers for tax-free savings accounts, which were introduced in 2009 by the former Conservative government.
Of the 45 per cent of major income earners aged 15 to 24 who saved for retirement in 2015, 33.5 per cent opted for TFSAs, compared to 14.3 per cent who contributed to an RRSP. For 25 to 34 year olds, 42 per cent put money in a TFSA, versus 37.3 per cent for an RRSP.
Older Canadians are better savers
Perhaps not surprisingly, those aged 35 to 54 — a generation more familiar with the RRSP model than with tax-free savings accounts — showed a preference for the former, at more than 45 per cent. They were, however, better savers across the board, with nearly three-quarters of their ranks opting for at least one of the three savings tools.
Where young and middle-aged would-be savers are concerned, a dramatic increase in housing prices relative to wage growth has been one the biggest challenges, said certified financial planner Jason Heath.
“Double-digit real estate appreciation and one per cent wage growth don’t work long-run on a lot of levels,” said Heath, the managing director of Objective Financial Partners in Markham, Ont., outside Toronto.
“This means that more cash flow is being allocated towards home down payments, and it’s taking longer to pay off mortgages. I’m seeing a lot of cases where people are going to have to rely on home equity as part of their retirement plan.”
Like Vettese, Heath said he believes baby boomers are largely doing fine when it comes to financing their retirement years.
“They bought homes and saved for retirement during a boom time,” he said. “It’s the latter half of the ‘Gen-X’ generation and millennials who are getting squeezed.”
Impact of low interest rates
A bigger challenge for young and middle-aged Canadians, added Vettese, is the low interest rate environment and the impact that the aging population is having on the balance between savers and borrowers, despite efforts by government to stimulate the economy.
“Interest rates are low now and they’re going to be staying low,” he said.
“That’s going to be an issue for retirees, because obviously that means they’re not going to get as much of their income from investment returns in retirement as used to be the case.”