Stagnant RRSP and RPP contributions could lead to increased income inequality in seniors
The gap between rich and poor families in terms of pension contributions has widened over the past two decades, according to a new report from Statistics Canada.
According to Pension Coverage and Retirement Savings of Canadian Families, 1986 to 2003, two-parent families with husbands aged 35-54 who were in the top 20 per cent of the earnings scale contributed an average of $8,000 to registered retirement savings plans (RRSPs) and employer-sponsored registered pension plans (RPPs) in 1986.
By 2003, their counterparts were contributing an average of $11,300.
However, for two-parent families with husbands aged 35-54 who were in the bottom 20 per cent of the earnings scale, the average contribution to RRSPs and RPPs stayed the same in 1986 and 2003 at $1,200.
“This widening gap in contributions towards retirement will likely make the distribution of retirement income among seniors more unequal than it currently is,” said René Morissette, co-author of the report.
Similar patterns were seen among single-mothers aged 35 to 54.
For those in the top 20 per cent, the average pension contribution rose by $1,300. However, the average contribution for their counterparts in the bottom 20 per cent actually decreased slightly.
The gap was also seen for single men and women without children. Those earning at the top 20 per cent contributed more in 2003 than in 1986, but pension contributions for those in the bottom 20 per cent stagnated over the past 20 years.
The widening contribution gap can be partly attributed to the fact the average income for top earners has increased while the average income for bottom earners has remained static since 1986, said Morissette.
The average earnings for two-parent families in the top 20 per cent increased from $123,000 to $170,000 over the past 20 years, therefore pension contributions as a proportion of income were 6.5 per cent in 1986 and 6.6 per cent in 2003.
“For all intents and purposes the contribution rate has remained the same,” said Morissette.
Another reason low-income families aren’t contributing more to RRSPs and RPPs is that they can be penalized by the very same government programs intended to raise the living standards of low-income seniors.
According to the 1999 C.D. Howe report The Dark Side of Targeting: Retirement Saving for Low-Income Canadians, clawbacks, such as the 50-per-cent reduction rate that applies to the Guaranteed Income Supplement, can reduce seniors’ incomes by a full dollar for every dollar of income they receive from their retirement savings.
The report stated more than one million Canadians with incomes under $20,000 contribute to RPPs or RRSPs and many of them would be better off saving in other forms or not at all.
According to Pension Coverage and Retirement Savings of Canadian Families, 1986 to 2003, two-parent families with husbands aged 35-54 who were in the top 20 per cent of the earnings scale contributed an average of $8,000 to registered retirement savings plans (RRSPs) and employer-sponsored registered pension plans (RPPs) in 1986.
By 2003, their counterparts were contributing an average of $11,300.
However, for two-parent families with husbands aged 35-54 who were in the bottom 20 per cent of the earnings scale, the average contribution to RRSPs and RPPs stayed the same in 1986 and 2003 at $1,200.
“This widening gap in contributions towards retirement will likely make the distribution of retirement income among seniors more unequal than it currently is,” said René Morissette, co-author of the report.
Similar patterns were seen among single-mothers aged 35 to 54.
For those in the top 20 per cent, the average pension contribution rose by $1,300. However, the average contribution for their counterparts in the bottom 20 per cent actually decreased slightly.
The gap was also seen for single men and women without children. Those earning at the top 20 per cent contributed more in 2003 than in 1986, but pension contributions for those in the bottom 20 per cent stagnated over the past 20 years.
The widening contribution gap can be partly attributed to the fact the average income for top earners has increased while the average income for bottom earners has remained static since 1986, said Morissette.
The average earnings for two-parent families in the top 20 per cent increased from $123,000 to $170,000 over the past 20 years, therefore pension contributions as a proportion of income were 6.5 per cent in 1986 and 6.6 per cent in 2003.
“For all intents and purposes the contribution rate has remained the same,” said Morissette.
Another reason low-income families aren’t contributing more to RRSPs and RPPs is that they can be penalized by the very same government programs intended to raise the living standards of low-income seniors.
According to the 1999 C.D. Howe report The Dark Side of Targeting: Retirement Saving for Low-Income Canadians, clawbacks, such as the 50-per-cent reduction rate that applies to the Guaranteed Income Supplement, can reduce seniors’ incomes by a full dollar for every dollar of income they receive from their retirement savings.
The report stated more than one million Canadians with incomes under $20,000 contribute to RPPs or RRSPs and many of them would be better off saving in other forms or not at all.
