– The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.
CANADA – Fourth-pillar assets significantly improve the outlook for Canadian households’ retirement readiness, according to a new report from the C.D. Howe Institute. In “The Bigger Picture: How the Fourth Pillar Impacts Retirement Preparedness,” authors Jeremy Kronick and Alexandre Laurin provide a comprehensive assessment of fourth-pillar assets in Canada.
“Contrary to popular claims of widespread gaps in Canadians’ retirement preparedness, a closer analysis of the impact of fourth-pillar assets show fewer Canadians at risk than previously thought,” commented Laurin.
By way of overview, Canadian households can count on four pillars of wealth in retirement:
- Government payments through the Old Age Security (OAS)/Guaranteed Income Supplement (GIS), which provides a basic income for all retirees;
- Benefits from the Quebec/Canada Pension Plan (Q/CPP);
- Wealth explicitly set aside for the purpose of supporting retirement, such as workplace pension plans; and
- Wealth from sources such as real estate, financial instruments, businesses, inheritances, insurance and tax-free savings accounts.
The authors focus on the group generally thought to be most at risk of inadequate retirement savings: employed 35-to-64-year-old Canadian households that primarily rely on voluntary savings to sustain their living standards.
After factoring in wealth already accumulated from all fourth-pillar assets, the authors find that 40 percent of this group has potentially already accumulated sufficient wealth to sustain themselves in retirement. This means that a sizeable proportion of households targeted by policymakers as most at risk of retirement income insufficiency are in fact already in good financial shape.
In total, this leaves about one-in-five employed 35-to-64-year-old households, most of them in the upper-income quintiles, likely needing to accumulate more retirement capital on a voluntary basis outside of workplace pension arrangements.
Kronick concludes: “It is crucial policymakers pay close attention to the role of fourth-pillar assets in determining the retirement readiness of Canadians. Failure to do so would be a significant oversight.”
