e-brief
PENSION PAPERS
The Piggy Bank Index: Matching Canadians’ Saving Rates
to Their Retirement Dreams
By
David A. Dodge, Alexandre Laurin and Colin Busby
INDEPENDENTREASONEDRELEVANTMarch 18, 2010
Making smart savings choices is critical to ensuring Canadians have access to sufficient
and secure post-retirement incomes. Except for the working poor, Canadians must save a
very high fraction of pre-retirement earnings every year – either through employer plans
or private saving – to provide for reasonably adequate and assured retirement incomes.
We estimate that most Canadians, should they wish to retire at age 65 and replace
70 percent of their working incomes, will need to save from 10 to 21 percent of their
pre-tax earnings every year, if they save for 35 years.
Although private retirement savings allow choice about retirement age and income,
Income Tax Act limits on tax-recognized savings would prevent many earners from
accumulating sufficient RRSP savings over 33 years (by age 63) to securely replace
70 percent or more of their working incomes.
The authors are grateful to the members of the Pension Series Advisory Group of the C.D. Howe Institute for their thoughtful comments
and suggestions on this paper; and in particular to James Pierlot and Faisal Siddiqi at Towers Watson for providing us with annuity
factors.
As Canada’s babyboom generation approaches retirement age, public concern about the adequacy of
retirement income is mounting. The sharp fall in stock markets and interest rates in 2008/09, coupled
with the bankruptcy of a few major employers, has heightened Canadians’ anxiety over the adequacy and
certainty of their expected retirement incomes, from employer pensions, Registered Retirement Savings
Plans (RRSPs) and other private savings. This anxiety has given rise to public debate about the tax and
fiduciary rules governing corporate pension plans, about the possibility of expanding contributory public
pension plans such as the CPP/QPP, about how much tax-deferred saving the Income T