Many of today’s middle-income earners will experience a substantial decline in their standard of living once they retire, according to a new study published by the Institute for Research on Public Policy.
The study’s author, Michael Wolfson, finds roughly half of Canadians who were born between 1945 and 1970 and have average career earnings of between $35,000 and $80,000 are likely to experience a drop in income of at least 25% once they reach retirement.
Wolfson examined a number of pension reform scenarios proposed by provincial governments and interest groups and estimated the effect on future retirement incomes. He found that a gradual doubling of pension benefits would do very little to improve the retirement income of current middle-income earners because the benefits would come to fruition several decades from now – too late for those born before 1970.
Wolfson suggested that simply changing the indexation of the old age security and guaranteed income supplement benefits would yield better results.
Wolfson also questioned the widespread assumption that the funding of new pension benefits is necessary to ensure equity between generations.
“What may, in fact, be most useful in the current pension debate might be to consider not only the size and shape of any extension of the retirement income system,” he said, “he said but also the pace of the phasing in of benefits,”
Wolfson concluded that much more ambitious reforms than the ones being considered will be required to improve retirement incomes.