Canada's Retirement Income System:
Myths and Realities

Thirteen common myths

Myth No. 1: Poverty among seniors is no longer a problem

Fact: Poverty among seniors has declined over the last 25 years, but it remains high, especially for seniors who live on their own. In 1969, 41.4% of families headed by a senior had incomes below Statistics Canada's 'low income cut-offs' (which are accepted as poverty lines), while this figure was 9.4% in 1993. Unfortunately, for seniors who live on their own, the poverty rate remains high: it fell from 69.1% to 51.1% between 1969 and 1993. Among these, women are the poorest: in 1993, 55.8% were poor compared to 38.3% of men.¹

Today, public pensions still do not guarantee an income equal to the poverty line. In 1995, OAS and the maximum GIS for a single person amount to $10,264. If a pensioner receives the maximum CPP/QPP retirement benefit, total public benefits come to $14,543. The poverty line for a single person living in a metropolitan centre of 500,000 or larger is $16,808. For a senior couple (both spouses 65 or older), the maximum benefits from OAS and GIS total $16,642 in 1995 $4,369 short of $21,011, the poverty line for two people living in a city of 500,000 or more.

Myth No. 2: Seniors are now better off than the rest of the population

Fact: In general, seniors are less well-off than the rest of the population. The average income of families headed by a senior was $40,572 in 1993, compared to $55,738 for families led by people under 65. For single seniors, the average income was $17,951, compared to $25,435 for non senior single Canadians. Only 26.1% of families headed by seniors had incomes of $50,000 or more in 1993, compared to 46.2% of all families.²

Myth No. 3: Seniors get generous tax breaks through the tax system

Fact: Seniors do receive some tax breaks, but the largest breaks go to seniors with modest incomes. Until recently, all seniors were entitled to claim an age credit when filing their income tax returns. In 1993, it was worth up to $918 in combined federal and provincial income tax savings. But the 1994 federal budget announced that this age credit will now be income-tested. The maximum credit in 1995, still $918, is available only to senior taxfilers with net incomes under $25,921 a declining credit goes to seniors with incomes between $25,921 and $49,100, while those with incomes above $49,100 are no longer eligible. Moreover, the age credit has been only partially indexed to the cost of living since 1986. It would have been worth $1,034 in tax savings in 1995 if it had remained fully indexed. Although the age credit will cost Ottawa and the provinces an estimated $2.2 billion in 1995-96, inflation is gradually eroding the value of the age credit. Seniors are also entitled to claim an income tax credit against the first $1,000 of pension income, which reduces their federal and provincial income tax bill by up to $264 on average. In 1995-96, the pension income credit will cost Ottawa and the provinces an estimated $465 million. But this tax break applies only to private pension income from employer sponsored pension plans, annuities and payments from a Registered Retirement Income Fund (RRIF). Many seniors have little or no income from these sources; only 49% of seniors who filed tax returns in 1992, for example, claimed the pension income credit.³

Myth No. 4: Woman retiring in the future will be much better off because they will have pensions in their own right

Fact: The majority of women retiring in the future will indeed have spent most of their adult lives in the paid workforce, but they are likely to have a financially precarious retirement. While they will be entitled to CPP/QPP benefits in their own names, those benefits are equivalent to only 25% of their lifetime average earnings up to the average wage. The maximum CPP/QPP retirement benefit in 1995 is $8,558 per year, but few receive the maximum. The average CPP/QPP retirement benefit for women was only $3,288 a year as of August 1995, compared to $5,724 for men. Moreover, because of the sectors of the economy where they work and their generally low earnings, most women in the paid workforce do not have employer pensions and most do not contribute to Registered Retirement Savings Plans (RRSPs). In 1993, 42% of female paid workers were covered by an employer-sponsored pension plan, compared to 47% of male workers.⁴ Only 21% of women who filed tax returns contributed to a RRSP in 1992, compared with 30% of men, and women contributed on average $2,444 as opposed to $3,399 for men.⁵