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Replacement rates of public pensions in Canada: heterogeneity across socio-economic status

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  • Nicholas-James Clavet
  • Mayssun El-Attar
  • Raquel Fonseca

Abstract

When individuals decide to retire from the labour force, different sources of income can help to maintain consumption and welfare. One of those is public pensions. Their importance as an income source varies greatly according to socio-economic status (SES). This paper analyzes how replacement rates (RR) of public pensions (OAS and GIS) and mandatory public pension benefits (C/QPP) vary across SES by using the Longitudinal and International Study of Adults dataset (LISA). Using the longitudinal nature of this survey, we compute and compare average RRs by SES. We specifically consider the role of education and health, and we study how living arrangements can explain RRs variations. To give an idea the average RR of public pensions for individuals in bad health is 32%, while it is 21% for those who report being in good health. Including public pensions and C/QPP benefits, these numbers become 54% for those in bad health and 41% for those in good health. When estimating a multivariate regression model and controlling for past income, we find for couples, that past income does not eliminate differences in replacement ratio by individuals’ characteristics. We argue that assortative mating plays a role in explaining the variation of replacement rates across individuals’ characteristics. Lorsque les individus décident de se retirer de la vie active, différentes sources de revenus peuvent contribuer à maintenir la consommation et le bien-être. L'une d'entre elles sont les pensions publiques. Leur importance en tant que source de revenu varie grandement en fonction du statut socio-économique (SSE). Cet article analyse comment les taux de remplacement (TR) des pensions publiques (SV et SRG) et des prestations de retraite publiques obligatoires (RPC/RRQ) varient selon le SSE en utilisant l'ensemble de données de l'Étude longitudinale et internationale des adultes (LISA). Grâce à la nature longitudinale de cette enquête, nous calculons et comparons les TR moyens selon le SSE. Nous considérons spécifiquement le rôle de l'éducation et de la santé, et nous étudions comment les conditions de vie peuvent expliquer les variations des TR. Pour donner une idée, le TR moyen des pensions publiques pour les individus en mauvaise santé est de 32%, alors qu'il est de 21% pour ceux qui déclarent être en bonne santé. Si l'on inclut les pensions publiques et les prestations du RPC/RRQ, ces chiffres deviennent 54 % pour les personnes en mauvaise santé et 41 % pour celles en bonne santé. En estimant un modèle de régression multivarié et en contrôlant le revenu antérieur, nous constatons pour les couples, que le revenu antérieur n'élimine pas les différences de ratio de remplacement selon les caractéristiques des individus. Nous soutenons que le choix d’un conjoint avec des caractéristiques similaires joue un rôle dans l'explication de la variation des taux de remplacement selon les caractéristiques des individus.

Suggested Citation

  • Nicholas-James Clavet & Mayssun El-Attar & Raquel Fonseca, 2022. "Replacement rates of public pensions in Canada: heterogeneity across socio-economic status," CIRANO Working Papers 2022s-11, CIRANO.
    • Handle: RePEc:cir:cirwor:2022s-11
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    Cited by:

    1. LoRiggio, Tessa & Morris, Todd, 2024. "The Gender Wealth Gap near Retirement in Canada," IZA Policy Papers 207, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Replacement rates; retirement; Canadian public pensions; LISA; Taux de remplacement; retraite; pensions publiques canadiennes; LISA;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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