The deferral period for the Canada and Quebec Pension Plans should be raised to age 75 to make retirement planning cheaper, says a report from the C.D. Howe Institute.
“Deferring Receipt of Public Pension Benefits: A Tool for Flexibility” argues that deferring the receipt of public pension benefits (Canada and Quebec Pension Plans) from age 70 to 75 would make retirement planning cheaper for Canadians who have private savings, including RRSPs and defined contribution plans. Public pension benefits increase with each year of deferral, says the report.
The report proposes raising the deferral age to 75 as a first step in reforming CPP and QPP. It adds that this first step could help retirees concerned about running out of savings or not reaching their retirement income goals.
“Delaying public pension take-up would allow middle- and upper-middle income Canadians greater retirement planning flexibility, to the extent they have private savings to rely on in the meantime,” said Antoine Genest-Grégoire, one of the report’s authors, in the release.
Uncertainty is a challenge in retirement planning, especially with fluctuations in the financial markets and the possibility of outliving one’s savings, the release said. Many retirees could then be overly cautious in their spending habits because they are afraid of running out of money or needing expensive healthcare.
The proportion of retirement needs covered increases considerably if the CPP or QPP are deferred, added Bernard Morency, another one of the report’s authors, in the release.
“The deferrals enhance the annual amounts of C/QPP and OAS received, which in turn lowers the amount of private savings required,” Morency added. “Pension deferral is thus both an effective means of reducing the savings required overall and of reducing risk.”
Read the full report here.