Montreal, August 25, 2020 — In a context of increasing life expectancy and declining access to employer-sponsored pensions, the age at which people decide to retire and begin taking their public pension benefits is a key part of retirement planning. A new study published by the Institute for Research on Public Policy highlights important differences between Quebec versus the rest of Canada in terms of when individuals first start to draw on their public pensions, and cautions that while early take-up of benefits may make good financial sense for many, for most it would preferable to defer until they are older.
In this study, a group of researchers led by Université de Montréal economics professor Pierre-Carl Michaud examined individual take-up patterns in the Quebec Pension Plan (QPP) and Canada Pension Plan (CPP). They found that more than half of 60-year-old Quebecers start drawing their QPP benefits at age 60 (when they are first eligible), compared with less than a third of Canadians in other provinces for the CPP.
“There are a host of reasons why many Canadians decide to take their QPP/CPP benefits as soon as possible,” Michaud explains. “While some use their public pensions to supplement their employer-based pensions, others start drawing these benefits because they need them to support themselves, or because people they trust have advised them to do so. That said, we have not found differences in retirement planning or motivations among pre-retirees across provinces that could explain why pension take-up at age 60 is significantly higher under the QPP than under the CPP.”
Another question raised by the looming financial risks associated with longevity is whether policy-makers should revisit the eligibility age for public pensions. Looking at the optimal age to start taking pension benefits while taking into account life expectancy, tax implications and interaction with other seniors’ benefits, the study shows that for many people — especially those who are single or have low career earnings — taking their QPP at 60 is financially advantageous, but that for most others it would be better to wait.
The authors do not recommend raising the age of eligibility for public pensions, however. Such a change could be controversial and costly if it led to an increase in government spending on social assistance to compensate those who would be penalized. Instead, they call for new measures to be implemented to encourage more individuals to defer collecting the QPP, including improving how information on pension deferral is presented to future retirees, as well as better spreading the penalty for early pension take-up. The goal: supporting future retirees in making better financial decisions to meet the challenges of living longer.
Hausser l’âge d’admissibilité aux prestations du Régime de rentes du Québec?, by Pierre-Carl Michaud et al., can be downloaded from the Institute’s website (irpp.org). (In French, with an extended English summary.)
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