This is part of the Globe and Mail’s week-long series on baby boomers. For more, visit tgam.ca/boomershift and on Twitter at #GlobeBoomers
The Boomer Shift is just getting started. Over the next two decades, baby boomers’ spending, investing, health and lifestyle decisions will radically affect the economy. We asked four experts for solutions on how policy makers should manage this massive demographic change.
Labour
David K. Foot is professor emeritus in the Department of Economics at the University of Toronto, and is co-author of the Boom Bust & Echo books.
The entry of the massive baby boomer generation into the Canadian work force over the 1960s and 1970s resulted in rapid work force and economic growth, rising unemployment and increasing inflation. Their exit over the next 20 years will have the opposite effects: slow work force and economic growth, falling unemployment and reduced inflation (possibly deflation).
But an aging society no longer needs economic growth to raise living standards and reduce unemployment. Slower work force growth, resulting from increasing boomer retirements and entrenched below-replacement fertility inevitably contributes to slower economic growth. But as long as economic growth is higher than population growth (and both can be negative), per capita incomes rise. Moreover, boomer retirements in Canada will open up opportunities for promotion and, ultimately, jobs for new labour market entrants, be they youth or immigrants. While there are many ways to contribute to society, economic contribution requires that the youth have appropriate skills, and that the immigrants be capable of operating in at least one of the two official languages.
Business leaders who crave faster growth because it makes stock markets “happier” and management easier will have no choice but to adapt to slower domestic growth. Economists and policy makers also need to adapt to this reality, and to understand that the “old” policy levers such as low interest rates are no longer nearly as effective.
-David K. Foot
Pensions
Keith Ambachtsheer is director emeritus of the International Centre of Pension Management at the Rotman School of Management, University of Toronto
People wringing their hands over the looming boomer pension crisis can rest easy. There isn’t going to be one. That doesn’t mean all Canadian boomers are going to retire exactly when they would like, with the retirement income they would like. But that doesn’t constitute a pension crisis.
Boomers will receive their Old Age Security cheques, and their GIS top-ups if they qualify. They will receive the CPP or QPP payments they are entitled to. On top of that, some 37 per cent of boomers will receive a workplace pension. Of the 63 per cent who are not so lucky, many have saved for retirement themselves and have accumulated significant equity in their homes during working lives, a period when financial and real estate markets provided generous returns. Finally, an increasing number of boomers can, and choose to work past the traditional retirement age of 65. For all these reasons, there will be no retirement crisis as the boomers transition into the post-work phase of their lives.
But that doesn’t mean these happy circumstances will repeat themselves over the course of the next three or four decades. Today’s young people are entering the work force later, many with education-related debt. The proportion of workers who are members of a workplace pension plan continues to fall. Financial and real estate markets are unlikely to be as generous to investors in the next three or four decades. Taken together, these factors do not bode well for the retirement security prospects of younger Canadians. Current initiatives to address these concerns such as the Ontario Retirement Pension Plan deserve broad support from coast to coast.
-Keith Ambachtsheer
Fiscal
Don Drummond, adjunct professor at Queen’s University School of Public Policy Studies, former chief economist at Toronto-Dominion Bank and a former top federal Finance Department official
The retirement of the baby boom generation is a threat to governments’ ability to raise revenues and provide services Canadians need and cherish while public costs for pensions and health care rise. The fiscal impingement is not inevitable if strategic plans are made to encourage fuller labour force participation, slow the rise in the costs associated with seniors and raise Canada’s anemic productivity growth rate.
Public and private pension plans need to remove disincentives to people working longer. Employers need to be more imaginative in creating bridging opportunities so older employees have more choices than continuing to work flat out or quitting. With the right policies, the lower labour force participation of older workers can be offset by increased participation of immigrants, aboriginal people, people with disabilities and women in fields where they are underrepresented.
Productivity and hence economic growth and government revenues could be strengthened by completing the market-based approaches federal and provincial governments have followed in recent decades. This would involve removing interprovincial trade barriers, ending preferential tax treatment of companies who stay small, and converting remaining provincial sales taxes to value-added taxes. But the productivity effort must go far beyond that. New approaches are required to ensure companies that are lagging in productivity improve their operations and we must do a better job of matching the skills being taught in our colleges and universities with the ever-changing demands in the workplace.
-Don Drummond
Health care
Louis Thériault, vice-president of public policy, The Conference Board of Canada
From help provided by family, friends and volunteers, to home and long-term care, Canada’s aging boomers will need a little, and in some cases, a great deal of support as they move through their golden years. Is Canada equipped to provide and pay for those supports?
There is no question that providing sustainable continuing care supports for older Canadians will require changes and new solutions. How the future unfolds largely depends on the type of levers applied by all levels of government – federal, provincial and territorial, and municipal. To start, governments need to clearly understand and develop a plan of action to manage cost drivers, such as reducing costs associated with alternate levels of care, and providing community-living alternatives to institutional care when appropriate.
In addition, they must be fully transparent with Canadians about the publicly-funded services and accommodation supports they can expect if and when they need continuing care. Efficient and cost-effective service delivery models will be critical along with strategies to ensure a strong and skilled labour pool to deliver the care and services that aging boomers will require.
Paid continuing care supports are provided by a dizzying mix of public and private organizations. Any solutions – including those directed at funding, programs, providers, or housing – must build on collaboration and partnership between this diverse mix of stakeholders and include the voices of family caregivers.
-Louis Thériault