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The Retirement Savings Gap

Archived Backgrounder

The Retirement Savings Gap

Ministry of Finance

Retirement experts recommend that workers aim to replace 50 to 70 per cent of their income in retirement to maintain a similar living standard. However, for a variety of reasons, many workers are not meeting that savings goal. As a result, a significant portion of Ontario workers may face a decline in their standard of living after retirement. Individually, this can lead to poor quality of life and collectively, it can have a broader impact on our economy. 

Factors Leading to a Retirement Savings Gap 

Canada and Ontario have a strong retirement income system built on Old Age Security (OAS), the Guaranteed Income Supplement (GIS), Ontario's Guaranteed Annual Income System (GAINS) and the Canada Pension Plan (CPP). However, these programs do not provide enough income replacement for many Ontario workers to ensure they are able to maintain a similar standard of living in their retirement. 

  • Workplace pension plans are less common than they used to be. Two-thirds of Ontarians do not participate in a workplace pension plan. 
  • People are not taking full advantage of retirement savings opportunities, leaving $280 billion in unused RRSP room in Ontario in 2012. 
  • Average lifespans in Canada are increasing, placing increased pressure on personal savings to last longer. 

Most People Do Not Have a Workplace Pension Plan 

The majority of workers in Ontario do not belong to a workplace pension plan. 

  • Fewer than 35 per cent of workers in Ontario currently have a workplace pension plan. 
  • The cost and administrative complexity of offering certain workplace pension plans can be onerous for some employers. 
  • Younger workers are expected to have multiple employers or change careers throughout their lifetime, leading to a patchwork of pension coverage. 

Pressures Impacting Voluntary Savings 

Years of low interest rates and unpredictable financial market performance have contributed to lower personal savings and lower returns on existing savings. As well, increased housing costs have led to higher levels of debt in recent years, especially mortgage debt. 

  • Between 2002 and 2012, Canadian household mortgage debt as a share of personal disposable income rose to 103 per cent from 68 per cent. 

Ongoing financial obligations, particularly for younger workers who may be paying off student loans, or raising children or caring for aging parents, also contribute to the undersaving problem. 

People are Living Longer 

Average lifespans in Canada have been increasing for some time and this trend is expected to continue. This puts pressure on personal savings and workplace pension plans to provide enough income for a retirement period that can last several decades. 

Increasing life expectancy makes it especially difficult for those without pension plans to ensure their personal savings are enough to carry them through their retirement years. Those without sufficient income from pensions or personal savings will be forced to rely on government programs and services and on financial support from family members. 

Broader Economic Implications 

Inadequate savings puts future retirees' incomes at risk and will also have negative long-term impacts on the economy. 

  • As Ontario's population ages, growth in the labour force will be slower, resulting in fewer workers and more retirees.
  • This trend, combined with inadequate savings, will put pressure on programs for seniors and impact the workers who will have to fund these programs through taxes in the future. 
  • As well, lower standards of living among a large population could put pressure on the economy through decreased consumption, leading to slower job and economic growth.

Increasing savings today would mean higher incomes and increased spending by future retirees that would help generate economic growth and employment in the long term. 

As noted in a recent paper by the former Governor of the Bank of Canada, David Dodge, higher retirement savings would also make more capital available in the economy for investment, which would result in higher productivity, stronger economic growth and job creation.

Media Contacts

  • For media inquiries only:

  • Drew Davidson

    Associate Minister’s Office


  • Scott Blodgett

    Ministry of Finance