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The Real Retirement: Why You Could Be Better Off Than You Think, and How to Make That Happen by Bill Morneau, Fred Vettese

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Understanding the Foundation—Pensions

We've already seen that the Canadian retirement situation has improved dramatically over the last few decades and is currently in very good shape. Still, Canadians continue to worry that government pension benefits won't be there for them when they retire. It is hard not to be anxious about the future when one doesn't know whether the present system is stable. Understanding the foundation of our retirement security is important if we are to be confident that we can rely on it for our own retirement.

The Three Pillars of Canada's Retirement System

Canadians rely on three formal sources of income for their retirement. In pension circles, these are usually referred to as the “three pillars.” We'll start with a high-level description of the three pillars in their current form.

Pillar 1 is the Old Age Security (OAS) pension and its companion program, the Guaranteed Income Supplement (GIS). OAS pension is payable to Canadian citizens aged 65 and over who meet the basic residency requirements. It is paid out of general government revenues, meaning no specific fund exists to cover the cost. GIS is payable to citizens who receive OAS, but only if their retirement income is below a fairly low threshold.

Pillar 2 is the Canada Pension Plan (CPP), and the nearly identical Quebec Pension Plan (QPP) which applies to workers in that province. The C/QPP is a mandatory program that provides a pension starting at any age between 60 and 70 to everyone who ...

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