Challenges for Canada’s Retirement Income System

img_ris_banner.jpgOver the next few decades, the aging of Canada’s population will have important implications for the design of public policies, especially those related to the adequacy and security of retirement income. Policy-makers across the country have clearly demonstrated their growing concern for improving Canadians’ financial capabilities and financial security. In
June 2010, federal, provincial, and territorial Finance ministers committed to working together to further develop policy options in three areas: innovating measures to improve the private pension system, addressing Canadians’ financial literacy, and expanding the Canada Pension Plan.

A proposed framework for defined contribution Pooled Registered Pension Plans (PRPPs) was announced in December 2010, with the goal of improving the range of retirement saving options for Canadians, especially those who do not have the benefit of an employer-sponsored pension plan. In its Budget tabled in March 2011, the Quebec government announced its intention to introduce a similar plan under the Voluntary Retirement Savings Plan (VRSP).

In February 2011, the Task Force on Financial Literacy tabled its report and provided advice and recommendations on a national strategy to strengthen the financial literacy of Canadians, including examining the relationship between financial literacy and planning for retirement. One of the recommendations of the Task Force was the need to explore Internet-based solutions to reach Canadians across the country and help them navigate the tremendous amount of information that is currently available.

Understanding the ways Canadians make savings choices is particularly needed at this point in time as the responsibility for the provision of retirement income is gradually being transferred from governments and employers to individuals. SRDC recently completed three studies that provide important lessons to inform policy-makers on options to address the challenges facing Canada’s retirement income system. SRDC program of research was designed to further our understanding of how retirement saving decisions are made by Canadian men and women and identify ways to improve decision-making with regard to retirement planning.

In Understanding Gender Differences in Retirement Saving Decisions, Professor Frances Woolley from Carleton University and Taylor Shek-wai Hui and Carole Vincent from SRDC assess the responsiveness of savings decisions to gender dynamics within households. Using data from the 2009 Canadian Financial Capability Survey (CFCS), the study reveals that couples’ financial management strategies have a significant impact on families’ financial health. Compared to households with shared responsibility for financial decisions, households where financial decisions are mainly the responsibility of the man are more likely to hold assets and have higher levels of asset holdings. Those with the woman in control are more likely to have debt and to have liabilities exceeding assets. The results of this study suggest that policy-makers need to be aware of gender dynamics when planning policy interventions.

Read the report.

Read Women’s economic empowerment and retirement savings decisions.

See presentation of findings at the Canadian Economics Association meetings in
June 2011.

Simplified Enrolment in Retirement Savings Plans by Boris Palameta, Carole Vincent, and Jean Pierre Voyer assesses the feasibility of testing the effectiveness of pilot schemes that involve simplified enrolment procedures for employees’ participation in employer-sponsored pension plans. This study puts forward options for the design of pension plans that can enable higher participation and better decision-making by changing the ways the decision to participate in the employer-sponsored plan is presented to eligible employees, building from ample empirical evidence to suggest that low saving rates stem, at least in part, from the way choices are offered and presented. The study provides details for the implementation of a randomized field experiment to rigorously assess the effectiveness of two schemes — one that combines simplified enrolment procedures with default contribution rate and investment options, and another that requires eligible employees to make an active decision about contribution rate. The results of the proposed experiment would be extremely informative for governments and also employers and service providers who are considering offering Pooled Registered Pension Plans when they become available.

Read the report.

See presentation of findings at the Canadian Economics Association meetings in
June 2011.

Using Web Tools to Help Canadians Better Prepare for Retirement by Shawn de Raaf and Carole Vincent builds on the growing body of research on the state of financial capability in Canada and abroad to identify how Web-based tools may best be utilized to assist Canadians in making better use of information that is already available to them, with the ultimate goal of helping them make more effective financial decisions. As a rigorous evaluation of a Web-based financial education tool, the experiment proposed in the study would represent an important contribution to our understanding of the role that Web-based technologies can play in assisting Canadians in achieving their retirement savings goals. Given the significant public and private resources that are currently being devoted to developing such tools and resources, it would provide important lessons on the design and delivery of future Web-based policies and programs to enhance the financial capabilities of Canadians.

Read the report.