Toronto, November 29 2023 – A new report by Deloitte Canada finds that while the majority of Canadians are unprepared for retirement ─ an issue that is poised to leave some at risk of financial hardship in the later stages of life ─ the financial services ecosystem and public sector can play an important role in solving the challenge. The report Running out of time: An urgent call to fortify Canada’s private retirement pillars, includes recommendations that can help 38 per cent of near-retirees achieve better financial security in retirement, and generate billions for the financial services industry.
“By employing a host of radical and innovative solutions, Canada can help to protect those vulnerable both near and in-retirement, and set a global standard for how it tackles retirement on the world stage,” says Hwan Kim, Partner, Financial Services Innovation and Open Banking at Deloitte Canada. “Given roughly 40 per cent of retirement wealth inequality is due to a lack of financial knowledge, the financial services ecosystem must collaborate with the health care system and public sector to equip Canadians with accessible retirement advice, holistic near-retirement offerings, updated pension planning, quality health care, and new resources to retire confidently.”
While saving for a secure retirement has always been a daunting challenge for working Canadians, the burden of preparing for a comfortable retirement has risen in recent years. Canadians now face a multitude of challenges in planning for retirement, such as increased investment responsibility on the employee, the rising costs of retirement, a lack of high-quality, near-retirement planning resources, and unexpected expenses during late-stage retirement.
According to the report, 55 per cent of near-retiree households will need to make lifestyle changes to avoid outliving their financial savings – a number that is expected to jump to 73 per cent when factoring in unexpected expenses such as healthcare, long-term care costs, and one-off expenditures. Other findings include:
- Only 14% of three million soon-to-retire households can retire with confidence, while 31% of near-retirees will require support in the form of the government’s public pension system
- Only 24% of private sector workers participate in employer-sponsored pension plans
- 40% of retirees have not purchased health insurance, of which 44% cite expensive premiums as the primary reason for not doing so
- 73% of near-retiree households will be at risk of financial hardships
in later stages of life if they require long-term care
- 58% of near-retiree and retiree households do not have a formal or detailed retirement plan in place
- 44% of working Canadians were dipping into their retirement savings to pay for non-retirement-related expenses
To address these challenges, the Canadian financial services ecosystem must collaborate across banking, wealth management, insurance, and the public sector. Together, the financial services ecosystem must focus on three main categories of commercially viable solutions: improve the quality and accessibility of near-retirement advice and products, help retirees manage rising retirement costs, and help Canadians build healthy saving habits early on.
“To conquer these pressing challenges, and course correct to reduce the number of vulnerable near-retirees, the financial services sector has a critical role to play in narrowing the retirement gap,” says Hwan Kim. “By coming together to develop innovative solutions and service offerings, we can both drastically improve the quality of retirement for Canadians and simultaneously unlock value for financial services and healthcare providers. Fundamentally, helping Canadians more than we are, is a win-win for everyone.”
The vast array of solutions put forward in the report are categorized into three main categories of opportunity, including: improving the quality and accessibility of near-retirement advice and products, which financial institutions will find profitable; helping retirees improve their cash-flow management and deal with rising costs; and continuing to incentivize Canadians of all ages to build healthy saving habits as early as possible.
If these solutions are implemented, the combined efforts of the financial services ecosystem can help 38 per cent of near-retirees achieve better financial security in retirement. The combined solutions could also generate billions in incremental revenue for the financial services industry and would effectively set a global standard for how Canada can lead the way in innovation, new-business building, and transformation to confront the retirement challenge.
Read the full report here.
About Deloitte Canada
Deloitte provides audit and assurance, consulting, financial advisory, risk advisory, tax, and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and service to address clients’ most complex business challenges. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
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