A new report by the C.D. Howe Institute says retirement savers would benefit from greater flexibility and security with a longer Canada/Québec Pension Plans deferral period.
In the report, entitled Deferring Receipt of Public Pension Benefits: A Tool for Flexibility, the authors show that holding off on receiving public pension benefits makes retirement planning cheaper for Canadians who use capital accumulation plans like RRSPs and defined contribution plans.
The authors propose that governments push back the deferral period for public pension benefits to age 75 from 70 as a first step in broader reforms to the two pension regimes.
“Extending the CPP/QPP and Old Age Security deferral periods is an immediate fix, right now, for sustainable public pension provision,” says author Antoine Genest-Grégoire. “Our modelling shows this step could help retirees worried about running out of savings or not hitting their retirement income goals. Delaying public pension take-up would allow middle- and upper-middle income Canadians greater retirement planning flexibility, to the extent they have private savings to rely on in the meantime.”
The proportion of retirement needs covered by public programs like CPP/QPP and Old Age Security (OAS) increases considerably when the benefits are taken later, explains Bernard Morency. “The deferrals enhance the annual amounts of CPP/QPP and OAS received, which in turn lowers the amount of private savings required. Pension deferral is thus both an effective means of reducing the savings required overall and of reducing risk.”
Under the current Canadian public pension system, benefits can start at any time between age 60 and 70 while Old Age Security benefits can start at any time between 65 and 70. The benefits are reduced if people start the program before age 65, and all public benefits are enhanced if commencement is after age 65. There is no requirement to cease work to start these benefits.
“Pushing back the deferral period to age 75 would enhance retirement planning flexibility for many middle-income Canadians,” says Morency. “As we wait for broader enhancements to be completed over the coming decades, this reform would be a good first step.”