CPP/QPP Adjustment Can Secure Canadian Retirements from Fear

A significant retirement crisis is emerging in Canada, affecting many workers who belong to what is termed the Vulnerable Massive Middle. This demographic, comprising over one-third of the future older population, has diligently worked and saved but often lacks the pension benefits that their parents enjoyed. Consequently, a considerable number of Canadians are approaching retirement with inadequate financial security.

Current Situation of Canadian Workers

More than 60% of Canadian workers do not participate in a workplace pension plan. In the private sector, a staggering 90% are without defined-benefit pensions, which historically guaranteed stable income throughout retirement.

• Over one-third of future retirees belong to the Vulnerable Massive Middle.
• 60% of Canadian workers lack workplace pensions.
• 90% of private sector employees do not have defined-benefit plans.

This lack of financial security is compounded by longer retirements, decreased family support, and rising healthcare costs. Furthermore, many retirees will have limited options beyond the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS).

The Benefits of Delaying CPP/QPP Claims

One effective strategy for retirees is to delay claiming CPP/QPP benefits until the age of 70. By doing so, retirees can increase their monthly pension significantly. Those who wait may more than double their benefits compared to claiming at 60.

• Delaying until 70 can lead to financial gains of approximately $100,000 in lifetime income.
• This delay provides protection against inflation and ensures a steady income.

Psychological Barriers to Delaying Claims

Despite the financial advantages, approximately 90% of Canadians claim their benefits by age 65, often motivated by fear rather than financial necessity. Many believe that by delaying their claims, they risk missing out completely if they were to pass away before reaching the breakeven point.

This fear focuses on immediate loss rather than the larger, long-term risks of outliving one’s savings. Research indicates that people often base financial decisions on emotions rather than mathematical calculations.

Introducing the Pension Delay Guarantee

To alleviate these fears, the Pension Delay Guarantee offers a solution. This reform proposes that if a retiree delays claiming CPP/QPP and passes away before receiving the higher benefits, their estate would receive a one-time payment to cover the benefits lost.

• This guarantee shifts the perception of delaying from a gamble to a secure investment.
• By minimizing fears of loss, retirees can make more confident decisions regarding their future.

Experience from similar pension programs suggests that even a modest death benefit can encourage individuals to choose higher, lifelong income streams.

Implications for Future Policy Changes

For the Vulnerable Massive Middle, increased income from delayed CPP/QPP claims can significantly improve financial security in retirement. The proposed Pension Delay Guarantee requires minimal financial investment and can serve millions without requiring new taxes or additional programs.

The urgency for implementation is apparent, especially with the next review of pension policies scheduled for 2026. If enacted soon, the Pension Delay Guarantee could benefit baby boomers who are navigating crucial claiming decisions by 2028.

A transformative change is necessary to ensure all Canadians can age with dignity and financial stability. A timely response from policymakers can secure the financial futures of many without hesitation.

Bonnie-Jeanne MacDonald, PhD, is a Halifax-based actuary and a director at the National Institute on Ageing, Toronto Metropolitan University.