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The extent to which working-age Canadians are making adequate financial preparations for retirement is an important and widely-discussed issue. Declining rates of pension coverage, the changing characteristics of pension plans, and the financial health of some private sector plans are important considerations in this regard. These also raise questions about the financial outcomes likely to be experienced in old age by pension members and non-members. Optimally, information on wealth would be used to assess such questions; however, up-to-date and comprehensive information on wealth is not available.
As an alternative, this paper compares the retirement transitions and income characteristics of seniors who were, and seniors who were not, pension plan members earlier in life. More specifically, the Longitudinal Administrative Data (LAD) base is used to identify employed Canadians who were, and employed Canadians who were not, pension plan members in 1991 and/or 1992, when they were in their mid-fifties. These same individuals are identified twelve to fifteen years later, when in their late sixties and early seventies. Amounts and sources of income received, retirement status, and earnings replacement rates are compared between groups.
Descriptive statistics show that pension members receive more income than do non-members from pensions and superannuations—including income from pension benefits, Registered Retirement Income Funds (RRIFs), and annuities. However, average incomes from other sources (such as: the Guaranteed Income Supplement; interest, investments and dividends; and capital gains) are higher among non-members.
The likelihood of being retired is estimated for pension plan members and non-members using multivariate techniques. Among men, the predicted probability of being retired at age 70 to 72 is 4 to 14 percentage points higher among pension plan members than non-members, with the difference largest among those from the high end of the pre-retirement earnings distribution. Whether individuals who do not have pensions defer retirement to older ages by choice or by necessity cannot be discerned from our data.
Among retired tax filers, our study does not show a consistent correlation between pension plan membership and earnings replacement rates achieved at age 70 to 72. The robustness of these findings is confirmed when the analysis is replicated for the years 2003 to 2005.
The terms RPP membership and RPP coverage are used interchangeably in this paper.