Janea Dieno, owner and certified financial planner (CFP) at Brightrock Financial Inc. in Saskatoon, recently met with clients preparing for retirement – a couple in their 50s.
While both make the same income of $80,000 a year, the male partner had 70 per cent of their savings in his name – largely on the strength of his workplace pension.
The female partner took 11 years away from work to raise kids, Ms. Dieno says, adding this kind of pension imbalance within a couple is a common scenario.
Most defined-benefit pension plans are based on years of service, she says, so women who take time off for child care are “not only taking a step back from their career growth, but they’re also not contributing to their pensions and retirement [savings].”
The gender pension gap in Canada is well-documented, although less headline-grabbing than lower pay and the likelihood of women taking time off to raise children, which are at its roots.
Canadian women with workplace pensions enter retirement with about 30 per cent less money in those plans than their male peers, according to a study Mercer Canada released earlier this year.
Women also generally live longer than men, so the money must stretch out. But those heading into retirement need not prepare for a lower quality of life, experts say, as there are several ways financial advisors can help female clients and couples make the best of their pensions.
Ms. Dieno says that for couples in which one person is a much higher earner, she recommends looking at spousal registered retired saving plans (RRSPs) about five or 10 years before retirement.
“We make a contribution in the wife’s name and the husband gets the tax credit,” she says.
It’s important for women to have retirement savings of their own, especially if a couple breaks up – even though assets are split evenly in these circumstances.
“What if the husband has all of the money in his pensions and RRSP, and he’s still working but … the wife decides to retire? We cannot pull any money out of the husband’s RRSP. … It’s important that there’s an equal distribution,” Ms. Dieno says.
Considering single or joint-life pensions
Julia Chung, partner and senior financial planner with Spring Planning Inc. in Vancouver, tells clients to pay close attention to the various pension options presented before retirement and to run the numbers on each before it’s too late because they only get one shot at deciding.
She says there are typically a dizzying number of payout options, including important decisions such as whether a pension continues to pay a person’s spouse after they die, a choice that often means lower payments.
“A lot of times there are 15 different options and it’s super confusing,” Ms. Chung says, noting it might make sense for the lower-earning partner to take a single-life pension, which will bring in more money for that person’s life but may not greatly affect the income of the higher-earning partner if it were to disappear.
Meanwhile, she advises higher-earning partners to get a joint-life pension that will continue supporting their spouses after their death.
“Those kinds of nuanced decisions are really worth paying attention to,” she says, adding she’s met with many retired female clients who found out way too late that their husband had chosen the single-life option.
“This one couple I’ve met with, the gentleman is about 10 years older than the lady, and she was always a stay-at-home parent,” Ms. Chung says. “He chose the single-life pension and when I asked why, he said, ‘They’re not very long-lived in her family.’ She was like, ‘I get nothing? No survivor pension?’ It didn’t feel good.”
Working longer or delaying pensions
Alexandra Macqueen, a CFP who co-wrote The Boomers Retire, a financial guide published earlier this year, says women should think hard about the age at which they want to stop working.
She tells women to think of their retirement age independent of when their partners will retire, saying her female clients are often younger than their husbands or are looking to add more high-earning years to their pension calculations after taking time off when they had children.
Staying at work for an extra couple of years can also boost contributions to the Canada Pension Plan, which Ms. Macqueen sees as a comparatively good deal for women because they typically live longer than men, so they receive more payments.
“You have this inflation-protected lifetime income, whether single or partnered,” she says.
She adds that delaying the payment of public benefits, including Old Age Security (OAS), can result in significantly higher benefits.
For example, someone who would receive $549.89 a month in OAS payments at age 65 would be eligible for $747.85 per month if they delayed payment to age 70, according to the Government of Canada website. That’s a 36-per-cent increase.
“If you have other income you can withdraw, you can use RRSPs and non-registered investments [at first],” she says.
Once retirement age hits, Ms. Macqueen encourages women whose pension income is less than their partner’s to make use of income splitting and CPP sharing.
The former is a tax measure that allows one person’s registered pension income, not including CPP, to be split between both partners on their annual tax returns. That allows the higher-earning partner to lower their tax bracket and potentially increase their OAS payment, which is income-based.
CPP sharing happens on the payment side, whereby couples – or ex-couples, in the case of divorced people splitting their assets – can apply to the pension plan to have their payments merged and split evenly. This can also lower the higher earner’s taxes.
Ms. Macqueen says that while not many people take advantage of this option, “it can make a big difference.”