Study: Young pensioners

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About one out of every five workers begin to collect employer-sponsored pension benefits before they reach the age of 60, according to a new study that assesses the potential loss of these early retirees on the labour supply.

Since these relatively young pensioners are not yet eligible for public pensions, and can expect a relatively long life span, it could be argued that they should be more likely than older retirees to return to work.

Although the study did show that the majority of the youngest pensioners continue to do some work for pay, the attachment to the labour market is relatively weak and loosens with age.

The study, published today in Perspectives on Labour and Income, found that at least half of people in their 50s who recently retired had at least some employment income the year after they began receiving their pension.

However, if this threshold of employment income were raised to a mere $5,000, the proportion fell to less than one-third.

The study used tax data from the Longitudinal Administrative Databank to assess trends in early pension uptake and post-pension employment during the 1990s and early 2000s.

Data definitely showed a recovery in "re-employment" among early pensioners since the mid-1990s. However, during the 2000s, the rates have remained essentially flat.

Thus, the study suggests that it is unlikely that these early pensioners will represent a growing source of labour supply in the years to come.

Because most pension plans feature substantial benefit penalties before the age of 55, retirement before that age is rare.

On average, less than 1% of workers aged 50 to 54 begin receiving pension benefits in any year. As the penalties drop in many large plans at age 55, the uptake rate jumps to about 4.5% and does not surpass that level until age 60.

Also, the loss of potential labour supply is highlighted by a significant gap in labour market attachment between pensioners and non-pensioners. This gap is clear at the age of 50, and widens for older age groups.

Among those who started receiving pensions at 50 in 2003, 71% earned some employment income the following year, compared with 87% for non-pensioners the same age. At the age of 59, only 46% of pensioners earned employment income, compared with 76% of their working counterparts.

The study found a sizeable gap between rates of post-pension employment for men and women. In 2004, for example, one in three young male pensioners earned at least $5,000 from employment the year after retirement; only one-quarter of their female counterparts did so.

Other studies have shown that women still contribute more time to housework and elder care, which may account for lower re-employment rates.

Early pensioners replace almost two-thirds of pre-retirement income, near the upper end of recommended replacement rates. Over 60% of their income comes from pension benefits, followed by employment earnings (24%) and other market income, mainly RRSP withdrawals and other investments (10%).

The study also found that early pensioners retired from relatively high-paying jobs. The median pre-pension salary for men was over $60,000, compared with just over $40,000 for those not collecting a pension the following year.

Women earned less than men in both pensioned and non-pensioned groups, but female pensioners had an even greater pre-retirement salary advantage than was the case for men. In each period, women who went on to collect pensions earned about two-thirds more than the median salary of their working counterparts.

Definitions, data sources and methods: survey number 4107.

The article "Young pensioners" is now available in the February 2007 online edition of Perspectives on Labour and Income, Vol. 8, no. 2 (75-001-XWE, free) from the Publications module of our website.

For more information or to enquire about the concepts, methods or data quality of this release, contact Ted Wannell (613-951-3546; ted.wannell@statcan.gc.ca), Labour and Household Surveys Analysis Division.