Retired seniors are among the biggest victims of inflation, which in June surpassed 8 percent for the first time since January 1983.
You should know that the vast majority of retirees who have worked in the private sector do not benefit from a retirement plan.
According to the latest Statistics Canada data on pension plans in Canada, as of January 1, 2021, 80% of private sector workers do not benefit from a registered pension plan.
Those lucky enough to be paying into an occupational pension plan, ie 20% of private sector employees, have to be content with receiving non-indexed or, at best, partially indexed benefits.
Most private sector retirees have to make do with their RRSPs and government benefits such as Old Age Insurance (OAS), Guaranteed Income Supplement (GIS), and QPP (or CPP) pensions. Fortunately, these government benefits are indexed.
But as far as RRSPs go, not only are investments obviously unindexed, but 2022 promises to be pocket-sized as stock markets and bond values tumble.
Unlike the private sector, where registered pension plans are rare, they are plentiful in the public (government) sector. Across Canada, as many as 91% of government employees have a pension plan. And 82% of employees benefit from the limo of retirement plans, a defined benefit plan whose pensions are based on years of service regardless of how financial markets perform.
When it comes to indexing pension benefits, federal officials are the most blessed. They are the only ones, or almost the only ones, to benefit from a defined benefit pension plan that is fully indexed to the consumer price index.
In times of very high inflation, this is an immense financial advantage.
Pension plans offered to Quebec public, parastatal, and city employees are only partially indexed.
Here is an example of how the indexation of the RREGOP pension, Quebec’s largest public sector pension plan, is calculated.
Pension indexation is determined based on years of service during the following three periods:
- Full indexation applies to the portion of years worked prior to July 1, 1982.
- For the portion of years worked between July 1, 1982 and December 31, 1999: Indexation is inflation rate minus 3%.
- For the portion of years worked from January 1, 2000: The pension is indexed according to the higher of “inflation rate minus 3%” or the minimum of 50% of the inflation rate.
THE SITUATION IN QUEBEC
What sources of income do our seniors over 65 have?
According to the latest data from Statistics Canada, the 1.63 million seniors age 65 and older shared a combined income of $63.2 billion, or $38,773 per capita, in 2019.
The various state benefits alone (PSV: Old Age Security Pension, GIS: Guaranteed Income Supplement, QPP or CPP pensions, etc.) account for $27.4 billion, or 43% of the total income earned by seniors aged 65 and older in 2019.
Per capita beneficiaries, state revenues average $16,900.
Across the country, Canadian seniors earned a median income of $44,456, or $5,683 more than Quebec seniors in 2019.
Here is an overview of the different sources of income for seniors in Quebec.
SOURCES OF INCOME FOR PEOPLE OVER 65 YEARS OLD
Six possible solutions for governments
Photo from the University of Sherbrooke website
Tax expert Luc Godbout, head of the tax department and research associate at the Chair of Taxation and Public Finance.
In their recent study, An enlightened look at work after retirement, tax expert and professor Luc Godbout, Research Chair in Taxation and Public Finance at the University of Sherbrooke, and his colleague Suzie St-Cerny suggest that both levels of government adopt interesting measures to encourage seniors encourage them to stay in the labor market.
- Extension of the period during which a deferral of QPP payments and PSV can be requested after the first payment of the QPP pension or PSV benefit from 6 to 12 months.
- Make QPP contributions optional at age 65, as in the case of the CPP (the federal counterpart of the QPP). With the QPP, you are currently required to contribute as long as you work.
- Make the Career Extension Tax Credit recoverable, which can reach up to $1,650 for individuals age 65 and older. Low-income seniors could also benefit from the tax credit.
- Implement a federal tax credit for career extension, a promise Justin Trudeau has yet to keep.
- Exclude labor income of $35,000 from the OAS clawback calculation. If your net worldwide income currently exceeds the $81,761 threshold, you must repay all or part of the OAS pension.
- Raising the age limit for converting an RRSP to an RRIF from 71 to 75. This would both streamline the RRSP and encourage career advancement.