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William Robson, president, C.D. Howe Institute

Joy von Tiedemann

Canada's finance ministers will gather in Kananaskis, Alta., on Monday with Canadians' retirement prospects high on their agenda. Post-crisis anxiety has fed expectations that the ministers will announce something big - mandatory accounts, perhaps, or the supersized Canada Pension Plan being pushed by some provinces and unions. Federal Finance Minister Jim Flaherty was right to dampen expectations on that front on Thursday. Different Canadians - modest or middle-income, large-business employees or self-employed, young or old - have different needs. Upgrading our retirement prospects requires adjusting with screwdrivers, not sledgehammers.

Recent studies of retirees have found that public programs and private saving allowed a sizable majority of Canadians whose living standards were modest while working live as well or better in retirement. Higher earners have more varied experience, but, for most, saving in pension plans, RRSPs, housing and other assets prevented painful post-retirement drops.

Fine so far - but pension coverage is slipping, saving rates are low, and returns on investment have sagged. Are future retirees not in trouble? In fact, a study published by the C.D. Howe Institute on Friday shows how well past experience foreshadows the future.

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We used Statistics Canada's LifePaths model to project the incomes, consumption and saving of hundreds of thousands of diverse families. We asked whether income-tested seniors' benefits, the CPP or QPP, pension plans and RRSPs, and owner-occupied housing would let people cover 75 per cent or more of their working-life consumption in retirement. The result: The vast majority of modest-income workers retiring over the next 15 years should easily surpass this benchmark.

Upper-income Canadians face a more mixed picture. About one in four people now retiring from the second-highest earnings quintile may not meet our 75-per-cent consumption-replacement benchmark; in 15 years, one in three may fall short. About 40 per cent now retiring from top quintile earnings may miss our benchmark; in 15 years, half may do so.

Looking further ahead, if current saving rates, limited access to cost-effective investments, and low returns were to persist, the income sources we canvassed would support post-retirement consumption for today's thirtysomethings less well. After 40 years, LifePaths shows even some lowest-quintile earners at risk of missing our 75-per-cent benchmark. In the second-highest quintile, more than half might miss it, and in the highest, that share would be two-thirds.

People looking for a big bang from Kananaskis should note, however, that even if current behaviour did persist, these projections still show most retired Canadians replacing 75 per cent or more of their working-life consumption from the sources we could model. One-quarter are on track to live better in retirement than while working.

And if today's younger workers see their retirement dreams at risk, why would recent behaviour persist? Inducements to save more could make a big difference. When we modelled partial increases in saving - only by people already contributing to defined-contribution pension plans and RRSPs - plausible changes sharply increased the number of people surpassing our benchmark.

This varied and uncertain picture argues for fine-tuning. Early talk of government-mandated accounts on a provincial or even national scale flagged when it became clear how poorly that approach would serve many Canadians, and how complicated and costly flexibility and opt-outs would be. Supersizing the CPP sounds exciting, but our results show that hammer missing the mark. Higher premiums would pinch modest-income workers for payouts that income-tested seniors' benefits will mostly claw back from them in retirement, and raising the earnings it covers could crowd out the very retirement-income vehicles middle- and upper-income earners need more of.

The key takeaway from this work for the ministers at Kananaskis is that some Canadians who are doing well while working may need to save more than their predecessors, and may need readier access to cost-effective, well-managed saving and retirement arrangements. Granted, post-retirement consumption for middle-class employees in small organizations and the self-employed is not the sexiest subject for a post-meeting communiqué. But that's what the finance ministers should discuss. Those people need better private pensions and RRSPs, not "one size fits all" solutions - screwdrivers from the ministers, not sledgehammers.

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William Robson is president of the C.D. Howe Institute and is co-author, with C.D. Howe colleague Alexandre Laurin and Kevin Moore of Statistics Canada, of Canada's Looming Retirement Challenge.

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