A new paper from HEC Montréal provides an overview of retirement incomes in the past 20 years alongside an outlook for future retirement incomes under the current system. Despite public discourse which suggests otherwise, the paper finds that Canadian seniors are faring well and that Canada’s retirement income system has met its objectives, both in terms of overall income replacement and poverty alleviation.

The same paper, however, also indicates that 10 and 20 years from now, certain issues and conditions in place today will only get worse, accentuating a projected decrease in average income replacement rates.

“Without diminishing or brushing aside the hardship endured by some, this conclusion may be surprising to many. It certainly contrasts with a certain public discourse referring to generalized financial difficulty among seniors,” the paper’s authors write. “Understanding how these perceptions come about and to what extent issues with our measurement of economic well-being may be distorting our view of these issues should be an important research priority.”

Entitled Retirement Incomes in Canada: Past, Present and Future, the paper looks at two decades of seniors’ outcomes in retirement between 2002 and 2022 and discusses likely paths for retirement incomes in the decades to come.

It finds replacement rates on average are high – between 80 per cent and 90 per cent, as retirement incomes rose slowly and steadily over the study period in constant dollars. While average incomes have generally experienced smooth growth over the different cohorts, however, these incomes have changed composition over the years.

Increases in personal income sources 

“The share of pre-retirement income replaced by public pensions is declining,” they write. “From 31 per cent of total pre-retirement income in 2002, the share went down to 27 per cent in 2022. We observe a similar declining trend for private pension income (27 per cent to 21 per cent).” Taken together, public and private pension incomes have dropped from representing 58 per cent of pre-retirement income to 48 per cent. They say increases in personal income sources – employment, dividends and registered account savings – are today making up the difference.

The paper also looks at poverty alleviation, seniors’ balance sheets, the current design of Canada’s pension system and future research priorities.

In the medium term, they say Canada’s retirement system, even though it is still delivering good outcomes, will start to reveal cracks.

“Canada needs a long-view, comprehensive review of its fragmented system which has – luckily? – performed well in recent decades but seems poised to underdeliver for a large swath of the population 20+ years from now,” they conclude.