Canadians’ retirement savings trend upward, but the cost of living continues to squeeze budgets

Recent analysis from Statistics Canada on the “third pillar” of the retirement income system—in addition to government pension plans—shows that there has been an increasing share of families’ contributions to one or more of the three registered savings accounts: Registered Pension Plan (RPP), Registered Retirement Savings Plan (RRSP), and the tax-free savings account (TFSA).

In 2009, over half (52.3%) of Canadian families contributed to one or more of them, and by 2020, this share reached a record high of nearly three in five (58.1%) families.

Tax-free savings account leads increase in contributions

An increasing proportion of families contributed to a TFSA from 2009 to 2020, while proportions of those contributing to RPPs and RRSPs stayed flat or declined over the same period.

In 2014, the average contribution to a TFSA was $9,105, compared with $8,905 for RRSPs and $5,645 for RPPs. In each subsequent year, average contributions to TFSAs have exceeded those for RRSPs and RPPs.

In 2020, the share of TFSAs (51.8%) exceeded those of RPPs and RRSPs combined (48.2%) as shares in total contribution to all three accounts.

Unlike TFSAs, RPPs and RRSPs allow individuals to make tax-deductible contributions. RPPs are frequently matched by the employer and the pension is taxed when received, while RRSPs can either be taxed on their full value at maturity or converted to a registered retirement income fund.

Income gap widens for contributions

The analysis also found that 1 in 10 Canadian families in the bottom income decile (or tenth) participated in retirement saving in 2020, while the rate rose steadily for families in the higher deciles, reaching 9 in 10 families in the top decile.

Families in the bottom decile contributed an average of $8,975 in 2020, while families in the top decile contributed an average of $35,650. Contributions generally increased from the lower deciles to the higher ones, with some exceptions to this correlation.

More Canadians covered

In 2022, 6.7 million Canadians of normal retirement age were members of a RPP, an all-time high since we started tracking this data in 1974.

In 2021, more than one-fifth (22.4%) of all tax filers contributed to their RRSP, up slightly from 2020. Total contributions reached $56.1 billion, while the median contribution amount was an all-time high of $3,890.

Current economic environment

The increasing cost of living has forced many families to adjust their household budgets. The Consumer Price Index (CPI) rose 6.8% on an annual average basis in 2022, a 40-year high, following gains of 3.4% in 2021 and 0.7% in 2020.

More recently, inflation slowed to 3.8% year over year in September 2023. However, months of interest rate increases have contributed to a 30.6% year-over-year rise in mortgage interest costs, another hit to homeowners with variable-rate mortgages and to those who’ve had to renew at higher rates.

Also up in September was rent (+7.3%), one of the five main contributors to the 12-month change in the CPI along with mortgage interest cost. Price growth slowed for food purchased from stores (+5.8%), but remained above overall inflation.

In August, the total credit liabilities of Canadian households increased 0.3% month over month to reach nearly $2.9 trillion (on a seasonally-adjusted basis). Credit card debt reached a record high $99.1 billion in August, the ninth consecutive month with a new high mark.

Life insurance and pension values

In the second quarter of 2023, the average value of life insurance and employer pensions rose to $356,162 per household (on a seasonally-unadjusted basis) where the main income earner was aged 55 to 64. This represented over one-fifth (21.3%) of total household assets and was the fourth straight quarter of growth.

This value dropped to an average of $168,896 per household (14.9% of total assets) where the main income earner was 65 or older, as those in this age group tended to draw from their accumulated pension assets to fund consumption.