New NIA report reveals why Canadians claim CPP/QPP too early

The National Institute on Ageing (NIA) recently published a paper advocating for better information and communication strategies to help Canadians decide when to start claiming Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits.

As the fourth part of an eight-part series, the paper addresses current gaps and unintended biases in government messaging that may lead Canadians to claim their pensions early.

This research-based proposal suggests alternative approaches to ensure Canadians receive accurate, timely information while underscoring the importance of support from industry experts to improve these communications.

According to the paper, the decision on when to claim CPP/QPP benefits is one of the most consequential financial decisions for Canadians.

While some older adults, particularly those with financial vulnerabilities, may benefit from early claiming, many Canadians gravitate toward the traditional claiming ages of 60 or 65, potentially forfeiting the opportunity for a larger lifelong pension.

A 2021 study found that six out of ten eligible participants started claiming CPP at either 60 or 65, despite the option to begin at any age between 60 and 70.

This trend may be influenced by current communication strategies for CPP/QPP benefits, which shape Canadians' financial decisions as they approach retirement, noted Bonnie-Jeanne MacDonald, director of Financial Security Research at the NIA.

To foster a more informed decision-making process, the NIA paper proposes several key adjustments to existing communications and online tools:

1. Use of precise terms: Introducing terms like ‘minimum benefit age’ (age 60) and ‘maximum benefit age’ (age 70 for CPP and age 72 for QPP) could clarify the role of age in benefit claiming, enabling participants to better understand their options.
2. Reframing of age adjustment factors: Emphasising the benefits reduction due to early claiming by referencing the amount payable at the ‘minimum benefit age’ rather than at 65 could encourage longer-term planning among participants.
3. Neutral terms for age 65: Referring to age 65 with terms such as ‘the reference age for benefit calculations’ rather than as the ‘standard age to start your retirement pension’ would prevent any unintended government recommendation, allowing Canadians to explore a broader range of options.
4. Earlier government communication: Sending information to participants well before age 60 would provide them with more time to consider their retirement options, allowing for more suitable planning.
5. Government-sponsored pension estimator: A basic online tool that uses individual entitlement data from CPP/QPP administrators would allow users to input future earnings projections and assess pension amounts at different claiming ages. This tool would help both participants and industry experts to provide more accurate advice.
6. Expanded projection tool: For participants without retirement investments that warrant professional advice, the paper suggests an advanced government tool to estimate net spendable income from CPP/QPP, Old Age Security (OAS), and Guaranteed Income Supplement (GIS), accounting for income taxes.

In discussing the purpose of the paper, titled ‘Providing the Right Information in the Right Way: Removing the Biases in CPP/QPP Communications and Empowering Informed Decisions,’ co-author Doug Chandler clarified that the recommendations do not suggest changes to CPP/QPP benefit designs.

Rather, they aim to deliver “simple yet impactful steps” to enable more neutral, well-timed, and relevant information for Canadians.

Alyssa Brierley, executive director of the NIA, emphasized that the NIA’s intent is to support the ongoing efforts of CPP/QPP administrators by offering evidence-based guidance to promote the long-term financial security of Canada’s older population and the sustainability of public support systems.