Canadians not saving enough for retirement: report

Anne Howland
CanWest News Service

Thursday, June 14, 2007

OTTAWA -- The majority of Canadians may be confident that they have enough money to retire comfortably, but a new study suggests that many need to sharply increase their annual savings or continue working past age 65 to avoid financial hardship.

Although previous polls show many Canadians are confident they can retire independently by 65, a study by the Canadian Institute of Actuaries shows that most Canadians need to save more.

According to a study by the Canadian Institute of Actuaries released Thursday, only one in three Canadians expecting to retire in 2030 is saving at levels required to meet basic household expenses in retirement.

"The message for most Canadians in their early to mid-40s is they will need to save more if they expect to enjoy an independent retirement," said the institute's president, Normand Gendron. "Governments need to provide Canadians with more education about the role that different savings vehicles can play in generating retirement income, and provide tools and incentives that encourage more households to save."

According to the study, those households saving adequately are doing so using some combination of home equity, company-sponsored pension plans, registered retirement savings plans and personal savings to supplement the modest base income they will get from Old Age Security and Canada/Quebec Pension Plan.

Those relying solely on one type of savings vehicle, however, are consistently identified among those falling short, and will either have to increase their savings significantly or continue to work past age 65, the study said.

The study's findings point to the value of home equity as a retirement savings tool and the report suggests, given the high percentage of Canadians who may need some portion of their home's equity to provide adequate retirement income, that governments consider making interest paid on the mortgage on a principal residence tax deductible.

"We found that home equity can make a significant contribution to narrowing the gap, provided your home is paid for when you retire," said Steve Bonnar, one of three actuaries who directed the project team. "Yet while home equity is important, on its own it is not enough to close the gap."

The study's findings contrast with recent opinion research commissioned by the institute. A poll conducted by Pollara Inc. in April 2007 found that 55 per cent of Canadians aged 40 or older feel some level of confidence that they will have the financial resources to retire comfortably. Those with retirement savings feel more confident, as do those with a workplace pension plan. Three out of four people surveyed said they plan to retire at or before age 65.

According to Statistics Canada, seven out of 10 Canadian households -- or about 9.4 million households -- had some form of pension assets in 2005.

The institute's study, Planning For Retirement: Are Canadians Saving Enough?, was conducted in April 2007 by a research team based at the University of Waterloo's Department of Statistics and Actuarial Science to assess whether Canadian "baby boomers" born in the early to mid-1960s are putting aside adequate savings for their retirement. It focused on two different income levels: households earning the average industrial wage ($40,000 in 2005) and those earning twice that amount.