Canada's retirement income programs

The financial reserves in Canada's three principal retirement programs, essential to the future of many Canadians, have doubled since 1990 and they represent one of the largest pools of investment capital in the country.

In total, Canadians had accumulated more than $1.3 trillion in the three major retirement income programs at the end of 2003. This amount has doubled since 1990, taking inflation into account.

Employer-sponsored registered pension plans (RPPs) accounted for the biggest chunk of assets, about 63%, and registered retirement savings plans (RRSPs) another 30%. The remaining 6% were held in the Canada/Quebec Pension Plans (C/QPP).

Pension funds are heavily invested in stocks and equity investment funds. As a result, changes in stock prices on Canadian and other stock exchanges have a direct impact on the value of pension fund assets.

Shaky market conditions in the first years of the new century have had an impact on the financial reserves of the funds. By the end of 2003, the assets held in both employer pension plans and RRSPs were struggling to regain the levels achieved in 2000, again taking inflation into account.

The assets of the C/QPP, on the other hand, were 35% higher in 2003 than in 2000. Concerns in the late 1990s about declining balances in these funds led to a change in investment strategy for the CPP. This, combined with subsequent increases in contribution rates for both plans, has greatly changed the picture for these plans.

Percentage of taxfilers who saved stable but amount saved increased

In 2004 alone, 7.9 million taxfilers aged 25 to 64, or 50% of the total, saved through either RPPs or RRSPs. The other half of taxfilers did not save through either program.

Although the percentage of taxfilers who saved grew very little from 1992 to 2004, the annual savings of these people was up 37% (adjusting for inflation) to $50.8 billion in 2004.

By the end of this period, almost as much was being contributed to RRSPs as was saved in RPPs. This represents a significant change from 1992, when RRSP contributions were much lower (almost 23%) than the amount saved in RPPs.

RPP coverage rates have declined substantially since early 1990s

As of January 1, 2004, there were nearly 14,800 active registered pension plans in Canada, covering nearly 5.6 million members.

The percentage of paid workers covered by an RPP stood at 45% in 1991, little changed from the coverage rate of 46% some 14 years earlier. Since then, however, the rate fell steadily to 39% in 2003.

Changes in coverage from 1977 to 2003 were very different for men and women. The biggest decline occurred among men. In 1977, more than one-half (52%) of male workers were covered. This proportion dropped over the entire period, although most dramatically from 1991, to 39%. The decline occurred in the private sector, where coverage fell from about 44% to 30%.

The situation was quite different for women. As a result of legislative changes allowing part-time employees to join an RPP, as well as the increase in the number of women employed in the public and private sectors, the female coverage rate rose substantially from 1987 to 1993. However, starting in 1993, the rate edged down slightly, from just over 42% in 1993 to 39% in 2003.

Coverage also differs greatly in the public and private sectors. Since 1977, the RPP coverage rate for the private sector has been steadily decreasing, from 35% in 1977 to about 27% in 2003. In the public sector, the coverage rate has always been much higher. In 2003, over 86% of workers in that sector were covered by an RPP. Coverage in this sector actually increased over much of the earlier part of this period, from 1977 to 1991, but has since been dropping.

A number of factors may have contributed to the decline in RPP coverage rates, including a drop in unionization and employment shifts towards low-coverage industries; increased employer contributions to programs such as C/QPP or Employment Insurance; and administration costs of defined benefit plans.

Employer contributions to RPPs up sharply in 2003

At the end of 2003, total annual contributions to RPPs stood at $29 billion, up 36% from 2001 (in 2003 constant dollars). This increase, the largest on record, is due to a 52% jump in employer contributions. Employee contributions increased only 9%.

Employer contributions rose sharply because many plan managers had to increase contributions, or resume them after a "contribution holiday," to avoid or at least reduce unfunded liabilities. Prior to 2003, employer contributions (adjusting for inflation) had generally been decreasing since 1993.

RRSPs: Contributions highest among older age groups, higher income groups

About 5.6 million people, or 38% of all eligible taxfilers aged 25 to 64, made normal contributions to RRSPs in 2004, totaling $25.2 billion. The proportion was up slightly from 36% in 1992.

Between 1992 and 2004, the biggest increase in the number of contributors to RRSPs occurred in older age groups. Contributions by taxfilers aged 45 to 54 and 55 to 64 were up by about 50%. At the same time, the number contributing in the youngest age group (25 to 34) rose just 3%.

The average contribution was also highest for the older age groups. Taxfilers aged 55 to 64 contributed, on average, about $5,200 in 2004, well above the $3,460 contributed by taxfilers aged 25 to 34.

Not surprisingly, an individual's income affects both the likelihood of participating in RRSPs and the amount contributed. In 2004, just 3% of taxfilers aged 25 to 64 with incomes less than $10,000 and eligible to contribute made normal contributions.

This compares with 76% of taxfilers with incomes of $80,000 and over. This group also made the highest average contribution in 2004 or $9,512 per person.

The total RRSP room available to taxfilers aged 25 to 64 reached $367.3 billion in 2004, 4.5 times higher than it was in 1992, taking inflation into account. The share of room used has continued to drop, from 20% in 1992 to 7% in 2004.

The bulk of the unused room is held by low-income taxfilers, who may not be in a financial position to contribute.

Significant amounts withdrawn from RRSPs in 2004 

Although taxfilers aged 25 to 64 contributed over $25 billion to RRSPs in 2004, they also withdrew significant amounts that year.

Over 1.4 million Canadians, or 9% of all taxfilers, received about $7 billion in RRSP income, an average of $4,905 per person. This average is, however, down significantly from $6,918 in 1994. This RRSP income was mainly in the form of withdrawals. Although it also includes annuities, they are less common among persons under 65.

Nearly 1.4 million RRSP holders aged 25 to 64 cashed in all or part of their RRSP savings under the Home Buyers Plan (HBP) since its inception in 1992, to at least partially finance the purchase or building of a home. Since 1992, close to 9% of taxfilers in this age group took advantage of this program, withdrawing in total $14.2 billion. Not surprisingly, the HBP was more heavily used by the younger age groups. Just over 12% of taxfilers 25 to 44 withdrew money under the HBP.

The Lifelong Learning Plan (LLP) was introduced in 1999. The latest statistics indicate that it is still not heavily used. Less than half a percent of taxfilers aged 25 to 64 withdrew money under the LLP. These 49,000 individuals withdrew close to $363 million from their RRSP to finance full-time education or training since inception. Most of those taxfilers using the LLP were in the younger age groups; nearly 41% were 25 to 34 years of age, and another 35% were between 35 and 44.

The statistics related to these programs are based on a file of tax returns received and processed in September 2005 for the 2004 tax year.

Available on CANSIM: tables 280-0002 to 280-0026.

Definitions, data sources and methods: survey numbers, including related surveys, 2607, 2608 and 2609.

The CD-ROM Canada's Retirement Income Programs: 2006 Edition (74-507-XCB, $209) is now available.

This product is an easy-to-use CD-ROM providing comprehensive statistics on the major retirement income programs in Canada, including: Old Age Security/Guaranteed Income Supplement, Canada/Quebec Pension Plans, employer-sponsored Registered Pension Plans, Registered Retirement Savings Plans. Also included is information on group RRSPs and Retirement Compensation Arrangements.

Data tables are also available for free on the Canadian Statistics module of our Web site, including the proportion of the labour force and paid workers covered by a RPP for six-year intervals from 1979 to 2003, and on the retirement savings through RRSPs and RPPs for 2004.

For more information, contact Client Services (1-888-297-7355; 613-951-7355; fax: 613-951-3012; income@statcan.gc.ca), Income Statistics Division.