Executive summary
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In spite of the importance of registered pension plans (RPPs) in discussions of Canada's retirement income system, very few Canadian studies have examined the financial outcomes experienced by RPP members and RPP non-members. In this study, we compare the earnings replacement rates achieved in retirement by a sample of married and common-law couples with and without RPP coverage in 1991 and/or 1992.
We find that couples without RPP coverage are less likely to be retired in 2006 than couples in which one spouse or both spouses have RPPs. Among couples without RPPs, those from the top of the 1989-1991 earnings distribution are far more likely to continue working until older ages than those from the bottom.
Among retired couples from the middle of the earnings distribution (i.e., Q2, Q3, and Q4), the earnings replacement rates of those without RPPs are more widely dispersed than those of couples with RPP coverage. Larger shares of retired couples without pensions than of couples with pension coverage have earnings replacement rates below 0.60, with the magnitude of this difference ranging from about ten to fifteen percentage points in Q2 and Q3, and from five to eight percentage points in Q4. However, couples without pensions are also more likely than couples with pension coverage to have earnings replacement rates of 1.00 or more, with the difference ranging from about seven to thirteen percentage points in Q2, Q3, and Q4. As a result of the asymmetric distribution of replacement rates among no-pension couples, different measures of central tendency yield different results. The average earnings replacement rates of retired couples without RPP pension coverage from Q2 to Q4 are generally six to twelve percentage points higher than the average rates of retired couples with RPP pension coverage. Conversely, the median earnings replacement rate of retired couples without RPP pension coverage is about three to six percentage points lower than that of retired couples with RPP pension coverage.
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