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Analytical Studies Branch Research Paper Series - Logo

Analytical Studies Branch Research Paper Series


Pension Coverage and Retirement Savings of Canadian Families, 1986 to 2003

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Pension Coverage and Retirement Savings of Canadian Families, 1986 to 2003

by René Morissette and Yuri Ostrovsky

Executive summary

Previous Canadian studies documenting trends in private pension coverage have focused on individuals and thus have been unable to assess whether Canadian families are better-prepared for retirement now than their counterparts were in the past. This study fills this gap and examines how pension coverage and retirement savings of Canadian families have evolved since the mid-1980s.

Families' preparedness for retirement is first assessed using wealth data from the Assets and Debt Survey of 1984 and the Survey of Financial Security of 1999. Then, families' pension coverage and retirement savings are examined over the 1986-to-2003 period, using data from Statistics Canada's Longitudinal Administrative Databank.

From 1984 to 1999, the financial wealth of families located at the 75th percentile has generally grown substantially. For instance, the financial wealth of families whose major income recipient is aged 55 to 64 and who are located at the 75th percentile rose by roughly $40,000 (in 1999 dollars) during the period.

In contrast, families located at the 10th or 25th percentile experienced virtually no growth in financial wealth over the 1984-to-1999 period.

In sum, using families' stock of financial wealth as a metric to gauge their preparedness for retirement suggests that, since the mid-1980s, the degree to which Canadian families were prepared for retirement has improved in the top quartile but not in the bottom quartile.

From 1986 to 2003, pension coverage of married men fell but pension coverage of married women rose. Because wives' growing pension coverage has partially offset husbands' declining coverage, pension coverage of Canadian families — as measured by the percentage of families with at least one employer-sponsored pension plan — fell less than it did among married men. However, pension coverage fell substantially among lone fathers and slightly among individuals who are neither married nor lone parents.

On average, retirement savings of two-parent families grew during the 1986-to-2003 period. Combined, the registered pension plan (RPP) and the registered retirement savings plan (RRSP) contributions grew from $2,000 in 1986 to $3,100 in 2003 (in 2002 constant dollars) among young couples, those where husbands were aged 25 to 34. Likewise, couples with husbands aged 35 to 54 saw the sum of their RPP and RRSP contributions rise from $3,900 in 1986 to $5,300 in 2003. For both young and prime-aged couples, most of the increase in total contributions was due to an increase in husbands' RRSP contributions.

The increase in RPP and RRSP contributions of two-parent families differed markedly across segments of the earnings distribution. Couples in the top quintile of the (age-specific) earnings distribution enjoyed substantial increases in combined RRSP and RPP contributions during the 1986-to-2003 period. Those in the middle quintile also experienced significant growth. In contrast, their counterparts in the bottom quintile saw the sum of their RRSP and RPP contributions stagnate during the same period. As a result, the difference in families' preparedness for retirement observed during the mid-1980s has increased since then. Similar patterns were observed among lone-parent families.

In sum, two-parent families and lone-parent families located in the bottom quintile of the earnings distribution are no better-prepared for retirement now than their counterparts were in the past. However, those located in the top quintile appear better-prepared than their counterparts were in the mid-1980s.

Several caveats should be kept in mind. First, this study has examined how Canadian families' preparedness for retirement has evolved since the mid-1980s, not the degree to which current retirement savings will allow couples to maintain their living standards once they reach retirement age. Second, we did not take into account the move away from defined-benefit RPPs to defined-contributions RPPs and the increase in life expectancy. Admittedly, these two factors may influence families' living standards after retirement.

Nevertheless, our results have important implications for the future. Recent research has shown that the maturation of the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) has led to a substantial reduction in income inequality among the elderly from the early 1980s to the mid-1990s. Part of this reduction in income inequality might be lost in subsequent years. This is because the growing inequality in contributions towards retirement among families could, in the absence of offsetting factors, make the distribution of family income among seniors more unequal in years to come than it currently is.

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Date modified: 2006-09-26 Important Notices