Hiking the Retirement Age is the Wrong Answer to the Retirement Crisis
Raising the age of eligibility for Old Age Security/Guaranteed Income Supplement (OAS/GIS) benefits is the worst possible way to deal with the retirement income security crisis facing Canadians.
Experts such as former Assistant Chief Statistician Michael Wolfson project that one half of all middle income baby boomers face a severe cut to their living standards in old age. This is due to falling employer pension coverage (down to 25% in the private sector), rising household debt combined with low savings, and the big hit to “fend for yourself†RRSPs which comes from high fees and low investment returns.
The right way to deal with this looming crisis is to expand the Canada Pension Plan now to raise incomes for seniors in the future.
The wrong way is to raise the retirement age for OAS/GIS.
Raising the retirement age will cut a basic building block of retirement security, the OAS pension of $540.12 per month which now goes out to 4.9 million Canadians aged over 65. Almost all citizens qualify.
Receiving OAS also makes seniors eligible for the GIS top up, which provides one in three seniors with a supplement which ensures they have a minimally adequate income in old age.
Raising the retirement age from age 65 to age 67 or higher would impact all future seniors, but would especially impact those who would qualify for the GIS supplement. Many older workers, especially the single near elderly, already face very high rates of poverty.
It is often argued that we have to raise the retirement age because Canadians are living longer. But raising the retirement age by 2 years will especially impact low income older workers. People in the bottom 20% of the workforce pass away 5.6 years earlier than those in the top 20%. Half of all low income men will collect an OAS/GIS cheque for only 10 years.
Raising the retirement age would also have a negative impact on those persons age 65 who are in poor health, and cannot continue to work.
What about cost? The latest actuarial report on the OAS/GIS projects that the number of recipients will increase from 4.9 million today to 9.3 million in 2030.
But the increase in total costs that is projected is much more modest, from 2.4% of GDP to a peak of 3.2% in 2030. That is because our economy will continue to grow.
Well under 1% of GDP is a small price to pay to maintain a basic retirement income for all Canadians, and especially the one in three seniors who have low incomes.
The crux of the issue is the modest 0.8% increase in GDP points (as you point out) devoted to seniors who will be proportionately more numerous 18 years from now. Big deal! It’s pretty obvious this will have to happen. But once again, Harper, using the intuitively appealing household finance analogy makes a case that many will find convincing.
The more the right speaks, the more I believe the key for us politically is to overcome the household finance-fiscal sustainability nonsense they use against us.
The federal government does not face a problem of fiscal sustainability. It has the ability to issue all the Canadian currency it wishes and so can never be insolvent. Even with a mainstream understanding it merely needs to insure the interest rate on the bonds it issues is lower than the nominal growth rate. The quantity of debt then diminishes as a percent of GDP as time goes by. This in fact has been the usual case since he end of WWII, although not during the insane monetarist period in the 1980s.
No doubt the rising percentage of elderly people represents a cost burden on the federal government. But let’s remember that the OAS is clawed back for upper income seniors, so calculations of the cost to the treasury need to take that into account.
By raising eligibility age,cutting the medical system, perhaps they just hope redundant workers will just die off faster and save money.After all if you can no longer work for Capitalism what use are you to said Capitalists.
… this is coming on the heels of a major depression, not a recession, and there are not many people who have good jobs that have a private pension plan, and/or pay well enough so that the earner actually has money left after paying the basics, in order to save anything. What about those of us married to somebody who cannot work, on ODSP, which forced ME to strip ALL of my retirement savings down to nothing, because even the spouse is not allowed to have a nest egg. It looks like I am going to have to work and work until I die, thanks to foolish government policies that led to this.
Most of the OAS/GIS is spent so there would be a reduction in consumption if the retirement age is raised. Social assistance may act as a stabilizer but it’s only about $600 a month and downloaded to cities/provinces.
Seniors with extra dollars might purchase savings bonds which serve to “finance” the deficit (it doesn’t really but it is a form of non-Govt savings).
1) retirees did not pay for themselves, they paid for their parents. The way CPP, OAS was set up INITIALLY was borrowing from the future generation of workers/taxpayers.
2) my tax money is going to the baby boomers retirement right now and will in the next 20 years of my employment.
3) everyone in my generation (42 yrs of age), and the younger one, KNOWS that there will be nothing left if we keep up the way we are now. Capital improvement and public sector services will drop hugely for the whole workforce.
SOLUTIONS;
1) index CPP/OAS to retirement income. We need to support the poor vis-a-vis our Cdn Social Contract, not the oldies I see driving around in new sports cars or giant SUV’s, taking trips around the world. They don’t need our tax money, but some do.
2) reform Govt employees pensions, especially the ones we voted for to solve our financial problems.
3) plan for the worst: as baby boomers start to draw from their investments instead of putting into them, there will be more of a collapse in the Investment Sector.
Bottom line is, there is no way my generation, the next one and the ones to come can afford this system the way it is currently set up. Pension reform needs to start NOW and it needs to start with the Govt stepping up first to the chopping block.
C Cusson
BA Political Science, Economics, Devt Studies
Business Owner
Owns absolutely no RRSPs, invests elsewhere
Unless you really understand economics & stats, it is difficult to guess what might really happen in the future. Some things are obvious. So I am continuing to run a successful business well past 65, because we have no idea what the costs will be for our next possible 30+ years. CPP and even OAS will not make much difference. We are doing all we can to stay fit & healthy & not use the medical system for as long as possible. And it is quite possible our kids will need our savings. Bet on it.