​Seniors Matter(s): Senior poverty!

As I sip my latte and type this on my MAC, I am aware of many of the people my age who don’t have the luxury of either.

Let’s do the math: $15/hour times a 2,000-hour work year equals $30,000 income BEFORE taxes.

In Ontario, the poverty line for a single person is $19,930. The income provided by Ontario Works is $7,452, leaving a $12,478 deficit. For an adult with one child, the poverty line is $28,185 and the Ontario Works payment is $13,497, leaving a deficit of $14,688.

The average annual salary in Canada in 2021 was $59,300. That number divided by 12 brings the average monthly salary to $4,942 as of May 11, 2023.

The poverty rate in 2019 was 10.1 per cent based on Canada's Official Poverty Line. This means that 3.7-million Canadians, or one-in-10, were living in poverty in 2019. It is important to understand who the 3.7-million people living in poverty are.

The number of Canadians over the age of 65 is set to double by 2036, according to Statistics Canada – in fact, the fastest-growing segment of the Canadian population is made up of people over age 85.

As Canadians age, more of us are heading into our senior years financially ill-equipped to adequately support ourselves when our working lives end. A stark illustration of this has been set out in a slew of new statistics and studies that show poverty among seniors is on the rise, once again, after nearly two decades of decline.

This should be a warning sign for policymakers: without action to address gaps in the retirement income system and strengthen access to pensions, Canada faces a bleak future, with more seniors living in poverty and unable to climb out. Such a scenario will have profound consequences for the ongoing economic and social well-being of Canadians.

We need to call on policymakers to strengthen the workplace pension system in Canada and to draw on the experience and knowledge of Canada’s biggest pension investors to develop workable solutions. In doing so, we can truly strengthen the retirement system and collectively work together to prevent the growth of senior poverty in the future.

Could senior poverty be Canada’s next crisis?

Many think so.

Two key shifts have contributed to the rise of senior poverty in Canada: demographics combined with the steady decline of workplace pension coverage.

Canadians are living longer than ever before: the life expectancy for both men and women is now 80.2 years (77.8 years for men, 82.6 for women). The number of seniors is also growing at a faster rate than any other segment of the population - by 2041, it is estimated that 25 per cent of Canadians will be seniors, with those over age 85 leading the way (Statistics Canada).

How will this growing cohort support itself, financially, when it can no longer work?

Traditionally, Canadian workers could rely on Canada’s retirement system – often described as a three-legged stool made up of government benefits, workplace pensions, and private savings. Today, however, that stool is a lot less steady as workplace pension plans, once an income staple for many seniors, continue their retreat.

In 1977, nearly half of Canadian paid employees (46 per cent) belonged to an employer pension plan – in 2014 that number was 33 per cent.

The type of pension coverage has also shifted. Years ago, most workers had a defined benefit pension arrangement which promised a regular monthly income in retirement based on years of service and earnings. In a defined benefit arrangement, pensions are paid for life, and for some, even rise along with inflation.

Employer-sponsored retirement plans are divided into two major categories: defined-benefit plans (DB) and defined-contribution plans (DB). As the names imply, a defined-benefit plan — also commonly known as a traditional pension plan — provides a specified payment amount in retirement. A defined-contribution plan allows employees to contribute and invest in funds and other securities over time to save for retirement.

These key differences determine which party — the employer or employee — bears the investment risks and affects the cost of administration for each plan. Both types of retirement accounts are also known as superannuations.

Today, many DB plans have been closed and replaced by options like DC plans or group registered retirement savings plans where members are required to manage their own asset allocation. Income is not guaranteed but based on how the investment selection does over time – if members make poor choices or if there is a major market event close to retirement - they bear the full risk of loss in the form of a reduced pension income in retirement.

Not surprisingly, members of DC plans aren’t all that confident about their prospects for retirement – only 57 per cent of defined contribution plan members say they are confident their pension savings will be an adequate source of income

The monthly Canada Pension Plan payment is currently $1,114, the average monthly payment is only $685. Meantime, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) together provide a maximum of just $15,000 per year for single seniors and $25,000 per year for seniors who live with a spouse. For the average Canadian, it’s not enough to make ends meet.

Without adequate workplace or government benefits, Canadians are left to make up the shortfall through private savings, ideally taking advantage of vehicles, such as registered retirement savings plans (RRSP) and tax-free savings accounts (TFSAs).

Recent research from the Broadbent Institute also shows that fewer than half of Canadians retiring without an employer-sponsored pension plan have saved enough to cover themselves for a year in retirement. The same research also reveals the overall median value of retirement assets of those aged 55– 64 with no accrued employer pension benefits is just over $3,000. This simply won’t be enough to live on.

Single seniors and women are particularly vulnerable simply because they need to cover their basic living costs without any income from a spouse. According to the Broadbent Institute, 28 per cent of single women seniors are living in poverty in Canada versus 24 per cent for single males.

Seniors who find themselves living on a low income or in poverty can find they have no way to reverse the situation. Granted, some choose to work longer: from 1995 to 2015, when poverty rates started to increase, older Canadians began staying in or re-entering the labour force in greater numbers. From 2006-13, more than 300,000 more seniors joined the labour force - a 96-per-cent increase.

For some, the decision to work longer and retire later is a matter of personal choice – for others, it’s a necessity. But for many, it is simply not possible - some Canadians will find themselves incapable of working at the same level or capacity as they become more susceptible to age-related illnesses or conditions.

Poverty among seniors also has economic implications which will be keenly felt as numbers tick up. Seniors who lack an adequate income can’t participate in activities and spending that benefit the economy – in fact, they often draw heavily on government benefits.

Canada’s public pension plans can, and should, support the government in its efforts to build a better pension solution for everyone and longevity risk. It’s simply not sustainable. A pension model must fairly spread the risk between the plan member and sponsor so that Canadians don’t risk outliving their savings.

However, is it sustainable?

As the number of recipients increases exponentially, the system of workers can no longer support the costs at a reasonable taxation rate.

In other words, the few can’t support the many.

According to a recent Statistics Canada report, the increase in the low-income rate for seniors indicates that their income has not risen as quickly as the income of non-seniors. The report’s authors suggest that a possible factor behind the slower growth of seniors’ income was the slowed growth of government transfers to seniors: “Starting from the early 1990s, the median government transfers to seniors increased at a slower rate relative to the period before the early 1990s. Indeed, from 1976-94, the annualized growth rate of median government transfers to seniors was 8.7 per cent, while from 1995 to 2009, the annualized growth rate was two per cent.”

I hope as a society, we plan for the future good of us all.

Living longer and living well are two different issues. Plan wisely.

‘Till next time!