March 2023 – 15 min read
According to Statistics CanadaOpens a new website in a new window, women retired with 18% less retirement income than men in 2020. This discrepancy is known as the Gender Pension Gap, or GPG.
The GPG means that women are at an increased risk of living in poverty in old ageOpens a new website in a new window.
While some research shows the pension gap is closingOpens a new website in a new window, there are still things women can do to help save more such as having a plan for retirementOpens in a new window, saving moreOpens in a new window and saving soonerOpens in a new window, and getting professional help from an advisorOpens a new website in a new window.
The GPG is the difference in retirement incomeOpens in a new window received by men and women.
In Canada in 2020, the gap was 18% - meaning that for every $1 a man received as retirement income, a woman (on average) received $0.82. According to the Organization for Economic Co-operation and Development (OECD)Opens a new website in a new window, men are retiring with larger pensions than women in all 34 member countries, with the average GPG being 25.6%.
Why is there a pension gap in Canada?
Ultimately, women are earning less money than men over what are typically shorter careers, often interrupted by breaks for caregiving. This means that women are contributing less to their pension pot, resulting in less money available when it comes time to retire.
Shorter careers
Women often take time out of the workplace to start a familyOpens in a new window or to care for elderly family, and these career breaks can mean less time earning money that can be put towards retirement. OECD research shows that on average, women’s careers are 1/3 shorterOpens a new website in a new window than those of men.
Lower wages
Although they’re different, the pension gap and gender wage gapOpens a new website in a new window are deeply connected. In Canada, women continue to earn less than men, earning $0.89 to every $1. Smaller paychecks result in smaller contributions being made to personalOpens in a new window and workplace retirement savingsOpens in a new window, while those in low-income employment may not be able to save at all.
Employment trends
The fact that there are overall fewer women in the workplace compared to men also contributes to the pension gap. According to the International Labour Organization (ILO)Opens a new website in a new window, the difference between men and women in the workplace is 8.9 percentage points, and women are also twice as likely as men to work part-timeOpens a new website in a new window.
Not paying into workplace pensions
According to Statistics CanadaOpens a new website in a new window, there were 6,593,256 active members of a Registered Retirement Plan (RRP)Opens in a new window in Canada in 2021 – or 27.5% of the total working age population. Although this number includes women, lower wages can translate into lower contributions into an RRP – and it also means that over 70% of the workplace population isn’t saving for retirement through work.
How women can prepare for retirement
With all of this in mind, it’s especially important for women to plan for retirementOpens in a new window – since as we know, many retired women are struggling as a result of not having saved enough.
According to Statistics Canada, women are an increased risk of living in poverty in old ageOpens a new website in a new window; in 2020, the number of women aged 65 - 74 living with low-income status was 14.2% compared to 12% of men. This number increases to 21% in women over 75 years of age.
Luckily, there are several things women can do in their working years to help close the pension gap and save enough for their dream retirement.
Start saving sooner
Nothing helps your savings grow quite like time. The earlier your start savingOpens in a new window, the more time your money has to grow and benefit from compound growthOpens in a new window and interest.
With compound interest, you’re essentially earning interest on interest – you earn interest on your original and following investment contributions, plus on all the interest that has built up over time. This gives you a larger balance to earn future interest on, leading to even bigger returns.
Make sure to look at high-interest savings accounts such as a Registered retirement savings plan (RRSP)Opens in a new window and Tax-free savings account (TFSA)Opens in a new window, both of which can help you to grow your money for retirement.
The money you contribute to these and other savings accounts make up just 1 source of your retirement income. In Canada, there are the so-called “3 pillars of retirement” – government benefitsOpens in a new window, contributions to a workplace savings planOpens in a new window and personal savingsOpens in a new window. Making sure you understand how all 3 of these retirement income pillars work together can help you save for retirement.
Throughout your working life, you’ll contribute to the Canada Pension Plan (CPP)Opens in a new window or Quebec Pension Plan (QPP)Opens in a new window. You’ll be eligible to receive this pension when you retire, along with other benefits like the Old Age Security (OAS)Opens in a new window and the Guaranteed Income Supplement (GIS)Opens in a new window if you meet the criteria. Studies show that women are more reliant on government benefitsOpens a new website in a new window in retirement than men, which is why it’s important to ensure this is not your only form of income when you stop working.
As part of your benefits package, your employer may offer some kind of retirement savings plan. This might be a pension plan that pays you an income when you retire. Increasingly, it might be a workplace registered retirement savings plan (RRSP)Opens in a new window, which you can convert to a RRIF or LIF in retirementOpens in a new window, allowing you flexible income with growth potential. In some cases, your employer will match your contributions to a pension or workplace RRSP, up to a certain percentage. Do your best to maximize your contributions to this – otherwise you’re essentially leaving additional savings on the table.
This is a broad category that can include RRSPs and TFSAsOpens in a new window, Locked-in Retirement accountsOpens in a new window or Locked-in RRSP’s (formerly money that was in a pension plan). When you retire, you'll need to turn these savings into incomeOpens in a new window. To do that, you could purchase an annuityOpens in a new window – a lump-sum payment that guarantees you a certain amount each month – or explore other ways to keep growing your capital, like keeping some money in a tax-deferred Registered Retirement Income Fund (RRIF)Opens in a new window or TFSAOpens in a new window.
While retirement may seem a long way off, it’s never too early to start thinking about what that chapter of your life may look like.
Picture your dream retirementOpens in a new window – do you see yourself living an active lifestyle filled with exercise, hobbies or travel? Or do you envision yourself relaxing and enjoying a slower pace of life? Do you plan to retire in Canada or abroad? What ageOpens in a new window would you like to retire? Do you see yourself stopping work altogether, or could part-time work or “semi-retirementOpens a new website in a new window” be in your future?
Once you have an idea of what your dream retirement looks like, now you can start to plan how you’ll pay for it.
As you transition into retirementOpens in a new window your income and expenses will change.
That’s why it’s important to create a new budgetOpens in a new window for your expenses using your estimated monthly income total in retirement.
The logic is that typically you will spend less as a retiree – you’re not commuting, for instance, your bills might be lower because you’re in a smaller place, you’re likely not supporting a family anymore – and so you will need less each year while still being able to live the way you’re used to otherwise.
Do this calculation for your situation by looking a snapshot – 1 month of bills, perhaps – and subtracting the expenses that you won’t have when you reach that stage of life. That said, remember to factor in new expenses you might have. These could be discretionary things like travel or new hobbies. However, it should also include potential scenarios like increased medical costs, help at home or the expense of moving into more supportive housing.
Having retirement income options is great, but how do you get the most out of them?
It’s not as simple as just taking the money out of your investment and savings to spend. When you begin transitioning from saving to income there are important strategies to be aware of that can help you maximize your money and reduce the taxes you have to pay.
An advisor can help you get the most out of your savings, answering questions on topics like:
You can continue to grow your money in retirement
Just because you’re retired, doesn’t mean you can’t lay the groundwork to continue investing and building your portfolio.
It’s important to examine your retirement income and make sure you have enough set aside for investing and saving. By attempting to grow your money during retirement, you’ll potentially put yourself in a better position to do all those exciting things you’ve been looking forward to for a long time.
Investing in something like a segregated fund policy that offers you guaranteed protection and the potential for growth could be a good option. You could also look at combining segregated funds with an income annuity to give you a regular source of income in retirement.
These options can help protect your investment from market fluctuationsOpens in a new window.
Some research has shown that the pension gap is closingOpens a new website in a new window, narrowing by 15 percentage points in Canada over the past decade.
If you have questions about saving enough for retirement, speaking to an advisorOpens a new website in a new window can help.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.