Government and Retirement Incomes in Canada Kevin Milligan ~ Vancouver School of Economics ~ University of British Columbia

Government and Retirement Incomes in Canada

with Michael Baker.
Prepared for the Council of Federal, Provincial, and Territorial Finance Ministers. November 2009
Google Scholar entry.


This paper pursues two goals. First, it explores the justifications and motivations for government involvement in retirement income provision. Second, it assesses the retirement incomes of Canadians with a particular focus on incomes deriving from government.

The first section of the paper looks at the role of government in retirement income, exposing issues of insurance market and decision-making failures to motivate government involvement in the retirement savings of individuals. The second section reviews the three-pillar structure of Canadian retirement income system, arguing that it is well suited to fit diverse needs with each of the pillars designed with a different goal - poverty alleviation, providing core income replacement, and encouraging additional voluntary savings. The third section provides a description of income situation of the elderly Canadians based on the Survey of Labor Income Dynamics (SLID) data. The results show that incomes of elderly have improved substantially in absolute and relative terms since 1970s, in particular for lower-income Canadians. Some Canadians at the lower end of income distribution depend substantially on public components of RIS, however, the third-pillar also plays a fundamental role in the retirement incomes of Canadians, particularly for those with higher incomes. The final section discusses, based on the existing body of literature, the issue of retirement incomes adequacy. Evidence from examining the consumption of those crossing the retirement threshold points to some possible drops in expenditure, but it is not obvious these expenditure decreases lead to a drop in well-being. The paper concludes by indicating that predicting the future is beyond the scope of the paper, but there are no clear indication that the replacement rates of future generations will be substantially different.


Web-published version, November 2009: Text.

Final draft, November 2009: PDF.

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