June 26, 2018 – Retirement savers would benefit from greater flexibility and security with a longer Canada and Québec Pension Plans (C/QPP) deferral period, according to a new report by the C.D. Howe Institute. In “Deferring Receipt of Public Pension Benefits: A Tool for Flexibility” authors Antoine Genest-Grégoire, Luc Godbout, René Beaudry, and Bernard Morency show that deferring receipt of public pension benefits makes retirement planning cheaper for Canadians who use capital accumulation plans such as RRSPs and defined contribution plans.
The authors propose that governments push back the deferral period for public pension benefits to age 75 from 70 as a first step in broader reforms to the C/QPP regimes. “Extending the C/QPP and Old Age Security deferral periods is an immediate fix, right now, for sustainable public pension provision,” says author Antoine Genest-Grégoire. “Our modelling shows this step could help retirees worried about running out of savings or not hitting their retirement income goals. Delaying public pension take-up would allow middle- and upper-middle income Canadians greater retirement planning flexibility, to the extent they have private savings to rely on in the meantime.”
The proportion of retirement needs covered by public programs like C/QPP and Old Age Security increases considerably when the benefits are taken later, explains Bernard Morency. “The deferrals enhance the annual amounts of C/QPP and OAS received, which in turn lowers the amount of private savings required. Pension deferral is thus both an effective means of reducing the savings required overall and of reducing risk.”
Uncertainty is an obstacle inherent to retirement planning: financial market fluctuations and the possibility of outliving one’s savings present significant risks for retirees to navigate. This uncertainty pushes many of them to be overly prudent in their spending habits for fear of running out of money if they live too long or need expensive end-of-life care.
Under current Canadian public pension system, C/QPP benefits can start at any time between age 60 and 70 and Old Age Security benefits at any time between 65 and 70. C/QPP benefits are reduced if they start before age 65, and all public benefits are enhanced if commencement is after age 65. There is no requirement to cease work or employment to start these benefits.“Pushing back the deferral period to age 75 would enhance retirement planning flexibility for many middle-income Canadians,” says Morency. “As we wait for broader enhancements to be completed over the coming decades, this reform would be a good first step.”
Click here to read the full report.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Antoine Genest-Grégoire, Senior Research Associate, Université de Sherbrooke; Luc Godbout, Professor, Faculty of Business Administration, Université de Sherbrooke; René Beaudry, FSA, FCIA, Partner, Normandin Beaudry, Consulting Actuaries Inc; Bernard Morency, Adjunct Professor at HEC Montréal, Senior Fellow, C.D. Howe Institute; or Laura Bouchard, Communications Coordinator, C.D. Howe Institute, 416-865-9935 or email@example.com