As many as six million Canadians are at risk of a significant decline in standard of living when they retire, shows CIBC research.

Canadians should have the choice to make additional, voluntary contributions to the Canada Pension Plan in order to avoid facing such a scenario in retirement, says Gerry McCaughey, president and CEO of CIBC.

“Our research found some 8.4 million people will experience a decline of more than 5% in their standard of living at retirement,” he says. “Far more troubling is the fact that 5.8 million Canadians are on pace to experience a significant decline – meaning a reduction in living standards of more than 20 per cent.”

Read: Retirement risks and strategies

What is alarming, he adds, is that of those 5.8 million people, most of them are young.

“In fact, our economists estimate that almost 60% of adults in their late 20s or early 30s, can expect to experience a significant decline in their standard of living when they retire,” says McCaughey.

Many of these young Canadians, especially those with lower incomes, can’t afford to buy the average home, so they will also be deprived of the benefits of the forced savings represented by home ownership.

They’re also coming of age in an era when private pension plans are increasingly scarce. And they’re finding it hard to replace what those private plans offered: scale, obligatory participation, expert investment management, locked-in contributions, a long-term horizon and certainty of outcome.

Read: Your clients won’t meet 2013 retirement goals: CIBC

McCaughey thinks five imperatives should be incorporated into any retirement savings solution:

  1. It must be easy to understand and simple to participate in.
  2. It needs to put the money of Canadians to work over the longest possible horizon – as much as 40 years or more – to maximize returns and grow savings.
  3. It needs to be voluntary, but committed savings so after an individual opts in annually, the money can’t be touched until retirement, giving it every opportunity to grow. These additional, voluntary contributions would come from after tax income, similar to the TSFA, and when withdrawn at retirement would neither be taxable nor result in a loss of income tested benefits.
  4. It needs to provide a predictable income stream at retirement, providing a date-certain, amount-certain return to Canadians in retirement.
  5. It needs to take advantage of the benefits of scale, and the incremental returns that are available from accessing high-quality investment management that operates within a low cost structure due to its size and scope.

McCaughey says the Canada Pension Plan or a CPP-like vehicle can deliver on all of these imperatives. CIBC research shows that such a solution would help close the retirement savings gap for young Canadians by as much as 80%.

Read: Lifelong retirement income: the zone strategy

Originally published on