Interest rates

Are House Prices, Interest Rates and Inflation Accelerating Canada’s Retirement Crisis?

How do you save for retirement?

If you’re like nearly half of Canadian homeowners, you rely on the sale of your home to help fund your post-work years. But this strategy may not work in the current economic environment. More than half of non-homeowners say they are worried about their ability to buy a home.

These are some of the findings of the fourth annual Canadian Retirement Survey by Healthcare of Ontario Pension Plan (HOOPP) and Abacus Data.

Taken in April — in a year that has had no shortage of scary headlines about rising inflation, rising interest rates, a possible recession and even stagflation — the poll asked 1 700 Canadians what they thought about their own financial situation and Canada’s retirement security in general.

Unsurprisingly, the outlook is bleak.

Concerns about the day-to-day cost of living jumped 11 points from a year ago, making it people’s top concern. And, over the long term, about three-quarters believe retirement savings are prohibitively expensive and that there is an emerging retirement crisis in Canada. Both results are up seven points from last year.

The good news is that the solution is well understood by Canadians and would benefit everyone: better workplace retirement savings plans. Two-thirds of Canadians are willing to sacrifice part of their own salary for a better (or any) pension and would welcome governments and employers who have made retirement security a priority.

One likely reason the anxiety is rising is that traditional means of funding retirement are becoming less accessible, especially for younger Canadians. The decline in coverage of defined benefit pension plans is well documented. Another approach used by many has been selling a home. But two-thirds of Canadians aged 18 to 34 are very concerned about housing affordability, and 75% are worried about the impact of interest rates on their ability to buy a home.

So, how to save for retirement when there is no employee savings and the possibility of buying a home is becoming more and more remote? Building your own investment portfolio is daunting to say the least, especially now. Markets have been volatile in 2022 and almost all asset classes are down. Research shows that this can lead to panicked and poor decision-making for people who are not investment professionals. It’s hard to do it alone.

And the majority of Canadians do not want to do it alone. In another interesting finding from this year’s survey, 58% of Canadians said they would like their pension funds to be pooled with “as many other people as possible”. These respondents recognize the enormous value of sharing the risk with others and having a team of professional investment experts – knowledgeable in all areas of investments and asset classes – investing on behalf of the group. This is particularly comforting in times of market downturn.

This is in addition to a large and highly diversified, professionally managed portfolio (without the fees and costs typically associated with investment advisers) that is well positioned to weather economic storms. All investment portfolios, large and small, are at risk of being impacted in 2022. But Canada’s pension plan members can rest easy knowing that the professionals who manage their savings are thinking big, long-term, and focused. solely on the fulfillment of their fiduciary responsibility. to members.

To be clear, it doesn’t have to be defined benefit plans like HOOPP, although that’s ideal. There are other ways to implement these attributes in workplace savings plans. Ultimately, any type of group plan where the employer helps the employee save efficiently and consistently is better than any on their own.

Canadians are well aware of this fact. This year’s “Canadian Retirement Survey” found that 66% of respondents would sacrifice their salary for a pension, 81% believe companies have a responsibility to provide a pension plan and 74% believe governments could save money by supporting effective retirement plans.

The outlook for Canadians may be bleak right now, but there is consensus across generations about what the solution might be. Let’s use the current situation to inspire action and make better access to retirement security a national priority. Future generations will thank us.

Steven McCormick is Senior Vice President of Plan Operations at HOOPP. David Coletto is President and CEO of Abacus Data.