Early pension claiming benefits low-income seniors, says report

A recent report suggests that lowering the early eligibility age (EEA) for public pension benefits could provide significant financial benefits for lower-income workers, according to Financial Post. 

This finding contrasts with the common recommendation to delay claiming to maximize payments. 

Canadians can start claiming public pensions at age 60, and the Global Risk Institute's report indicates that doing so can help reduce poverty among lower-income seniors. 

The report analysed two Canadian pension reforms from the 1980s, which reduced the EEA from 65 to 60, and found that lower-income retirees benefited financially by claiming earlier.  

While early claiming decreases Canada Pension Plan (CPP) payments by 0.6 percent each month (or 7.2 percent per year), waiting to claim increases payments by 0.7 percent per month (or 8.4 percent annually).  

However, lower-income retirees, who typically have shorter life expectancies, may not live long enough to benefit from delaying their claims.   

Bonnie-Jeanne MacDonald, director of financial security research at the National Institute on Aging (NIA), emphasized that early claiming is often the only viable option for lower-income Canadians, who might otherwise face higher taxes as they age.  

She described claiming at age 60 as “life-changing” for these individuals. Bill VanGorder, chief operations officer at the Canadian Association of Retired Persons (CARP), concurred, highlighting the importance of any income to cover day-to-day living costs. 

The report also notes that penalties for early claiming in Canada are lower than in other countries, such as the US, making it a more attractive option for those in need of funds sooner.  

While early claiming leads to a greater initial income for seniors, it results in losses in pension wealth later on, particularly for higher-income Canadians. 

MacDonald, who has long advocated for delaying pension claims to increase monthly payments, argues that while waiting to claim can alleviate higher-income seniors' concerns over long-term care costs, changing the EEA is not the solution.  

She acknowledges that some Canadians are forced into early retirement due to circumstances beyond their control, such as job loss or illness.  

Additionally, pension reforms in other countries that increased the retirement age have led to mixed outcomes, including increased vulnerability to poverty for some groups and a “spillover” effect on other social programs. 

Ultimately, MacDonald believes that the key lies in supporting more informed decision-making regarding when to claim CPP or Quebec Pension Plan (QPP) benefits.  

She underscores the complexity of the decision and the importance of personalized guidance for Canadians in making the best choice for their financial situation.