Poverty among seniors rising in Canada, OECD points to public pensions gap

OTTAWA - An international think-tank warns that poverty among Canadian seniors is on the rise and that current pension safety nets may be inadequate to address the problem.

The comprehensive study on global pensions by the Organization for Economic Co-operation and Development showed that Canadians over 65 years of age are relatively well off when compared with most others in the 34-country group of advanced economies.

For example, the average poverty rate for the group in Canada was 7.2 per cent during the study period, among the 10 lowest in the OECD and better than the 12.8 per cent average.

But the report also points to gaps in the Canadian situation.

For instance, as poverty rates were falling in many OECD countries between 2007 and 2010, in Canada they rose about two percentage points.

As well, the report notes that public (government) transfers to seniors in Canada account for less than 39 per cent of the gross income of Canadian seniors, compared with the OECD average of 59 per cent, meaning more Canadians depend on workplace pensions to bridge the gap.

Meanwhile, public spending on pensions in Canada represents 4.5 per cent of the country's economic output, compared with and OECD average of 7.8 per cent.

Canadian seniors depend on income from private pensions and other capital for about 42 per cent of their total.

"As private pensions are mainly concentrated among workers with higher earnings, the growing importance of private provision in the next decades may lead to higher income inequality among the elderly," the report warns.

"Those facing job insecurity and interrupted careers are also more exposed to the risk of poverty because of the lower amounts they can devote to retirement savings."

The report notes that rising poverty among Canadian seniors, although still relatively low, is most acute among elderly women, especially those who are divorced or separated.

"Higher poverty among older women reflects lower wages, more part-time work and careers gaps during women's working lives," the report said while also noting "the effect of longer female life expectancy ... for which many women have not been able to save enough."

The OECD says Canada's current pension support, both private and public, replaces only about 45 per cent of average pre-retirement gross income, well below the two-thirds that may experts recommend.

Among lower income Canadians, however, the replacement rate is 80 per cent.

Some provinces, particularly Ontario and Prince Edward Island, have been putting pressure on the federal government to move ahead with expanding the Canada Pension Plan which, along with Old Age Security, represents the main source of public transfers to seniors in the country.

But federal Finance Minister Jim Flaherty has so far rejected the approach, saying the economy is not strong enough to withstand the added premiums on firms and individuals expansion would entail.

Last year, the federal government also cut back on the OAS program by raising the age of eligibility to 67 from 65 effective in 2023.

Canada's approach is not unusual, however. The report notes that following the 2008-09 crisis, pension reform has been widespread throughout the OECD, with many moving to a higher retirement age of 67.

"Some countries have gone even further, moving to 68 or 69 years, though no other country has gone as far as the Czech Republic, which decided on an open-ended increase of the pension age by two months per year," the OECD adds.

Another innovation being adopted by some countries is tying future benefits with demographic and economic growth projections. The OECD notes that many if not all countries are facing challenges with aging population, slow economic growth and governmental fiscal concerns.

Vancouver Sun