Income level impacts retiree health

A closer look at the NIA’s latest report on retirement income

Originally published in Benefits and Pension Monitor’s Daily News Alerts.

There is definitely reason to be concerned that having unstable, uncertain or low income in later life could be detrimental, says Dr. Madison Brydges, a health policy researcher at the National Institute on Ageing and lead author of its report, Healthy Outcomes: Understanding the Impact of Adequate, Stable and Secure Retirement Income on the Ability of Canadians to Age Well and in the Right Place.

The main objective of the report was to get a sense of how income relates to health and well-being in later life. “We looked at income across three areas ‒ whether it is stable, so is your income fluctuating; whether it's secure, so are you, in the future, going to have income; and whether it's adequate,” she said. Among the findings is that even “worrying about your future economic circumstances is associated with worse mental health. There's also some research that shows that having an unstable income, particularly during your working years, is associated with worse physical health outcomes,” said Brydges.

There is a huge gap, particularly in Canadian research on this topic. “But lucky for us, there's quite actually a large body of literature coming from the United States that's looked at various measures related to income and economic security into later life. So we were able to draw on those studies and look at how incomes have been related to well-being in later life,” she said.

Unfortunately, very few studies have looked at income stability for older adults and this is concerning for lots of reasons, she said. “There's some concern that older adults may not be able to make up for an income loss later in life. We don't know if a sudden drop of income in later life could be associated with an adverse health or well-being outcome. That specific area of research is quite a gap in Canada.”

There's also an interesting gap related to gender and looking at how gender impacts health. “That's going to be increasingly important as we look into how the baby boomers retire mainly because women have had quite different economic histories than previous generations. They worked longer and their pension coverage improved. So definitely, future research will want to unpack how gender and other identities intersect with health and well-being and income.”

For pension plan sponsors, a really important message that “we're trying to get across is that we're tying our work on ageing to ageing in the right place. This means you want Canadians to have a choice to be able to live in a location that works best for them. Having stable, secure and adequate sources of income in later life can help Canadians make better decisions and be more supported in their choice to age in that location, whether it's home or it's another type of place.”

Celine Chiovitti, executive vice-president and head of pensions at OMERS, which co-sponsored the report, said it continues to “reinforce the importance of providing a meaningful source of retirement income to Canadians.

“This study went a step further than the research we've done in the past to really identify the linkages between having access to an adequate, secure and stable income and healthy outcomes. We believe now, more than ever, with an ageing population and more individuals over the age of 65 than under 14, that it's so important that we weigh into this space and understand the positive outcome that happens when you have access to these types of plans and the impact that has on society as a whole.”

One of the key recommendations from the study is on retirement saving in Canada.

Canada’s public pension systems were not designed to act as a full replacement source of income for workers. Canadians are expected to make up their remaining income needs through personal savings or workplace pensions. Not only are some Canadians not saving enough for their retirement, many working-age individuals do not have access to workplace pension plans that offer stable and reliable forms of retirement income, said the report.

Further, defined benefit plans that offer secure and stable income throughout one’s retirement are less common in the private sector. There is, therefore, a need to improve access to workplace pension plans, particularly those that offer post-retirement income security. Increasing workplace pension coverage would provide more Canadians with better opportunities to achieve income security in retirement by offering an additional and diversified source of retirement income.

It could also have the effect of limiting reliance on publicly-funded programs for older Canadians, relieving some of the inevitable burdens that provincial and territorial health and long-term care systems will face as the proportion of older and mostly retired Canadians to working Canadians more than doubles between 2010 and 2060.

To support Canadians in having adequate, stable and secure incomes as they age, the report included six policy recommendations. These strategies promote improved financial literacy and planning amongst Canadians, advocate for creating retirement income systems that provide stable and secure incomes in retirement, and stress the importance of continuing to evaluate the impact of retirement income streams that impact Canadians with lower incomes. “Doing so will help ensure that Canadians are able to have financial independence and choice to ultimately enable aging in the right place,” it said.

And that is part of what OMERS is trying to do in promoting workplace retirement savings.

However, another benefit of employer-sponsored pension plans, said Chiovitti, is “one of the things that we've heard based on our previous study is the importance access to these types of plans has in attracting and retaining the workforce. With the war for talent, it's difficult to find people to do the jobs that we need them to do.”

Having access to this type of a pension is a value add and is one of the reasons they stay with employers. “And so we're trying to tell the story,” she said. “We're trying to communicate to this next generation of worker and then just continuing to have the conversation about the fact that 60 per cent of Canadians don't have access to this type of a plan and we think a broader discussion needs to happen. If we can share information about it, it's our obligation to do.”

For more information, read the full Healthy Outcomes report.