In the midst of a national debate on pension reform, it’s the option no party in Parliament wants to talk about.
Raising the qualifying age for full CPP benefits beyond the current 65 is hardly a political winner. Yet a new report points out that retirement ages are on the rise around the world and that the change should also be considered here.
Federal Finance Minister Jim Flaherty, who rejects the idea, is working with the provinces to increase benefits through “modest” increases to Canada Pension Plan contributions.
Political scientists Martin Hering and Thomas Klassen argue in a report for the Mowat Centre for Policy Innovation that increasing contribution rates is not popular either and so Canadians should be offered a choice.
“If forced to choose between raising the retirement age or a contribution increase, it is uncertain where public opinion would settle,” they write in a report that looks at raising the current qualifying age for full benefits from 65 to 67. “A public conversation on these real options needs to begin immediately.”
Pension expert Keith Ambachtsheer of the Rotman International Centre for Pension Management said he agrees Canadians should be debating whether 65 is still the best age for the program.
“Given that we’re talking about pension reform, I think they’re absolutely right to say ‘Why the hell are we not talking about that dimension of it?’” he said.
The report questions why Canada’s politicians are silent on the question, particularly as Ottawa and the provinces are deep into plans for the first CPP reforms since the mid-1990s.
That mid-1990s reform, which increased contributions, is widely credited for putting Canada ahead of other countries in ensuring its pension plan is well funded for the long term. However, Ottawa and the provinces acknowledge more needs to be done because many Canadians are still not saving enough for retirement.
Finance ministers for Ottawa and the provinces are scheduled to talk pension reform next month in Kananaskis, Alta. According to the Mowat Centre report, there are several reasons why increasing the eligibility age should be considered:
Everyone else is doing it
Australia passed a law in 2009 raising the age from 65 to 67, which will be fully implemented in 2024. France passed a law this year raising the retirement age from 65 to 67 and early retirement from 60 to 62, which will be phased in by 2021. The United States agreed to raise access to social security from 65 to 67 in 1983 in a slow change that won’t be complete until 2025. This week a bipartisan White House budget commission recommended a further increase to 69.
Canadians are living longer
When CPP was launched in 1966, those who retired at 65 could expect to live another 13.6 years. In 2010, 65-year-olds can expect another 17.9 years.
Cost
Using data from the CPP’s chief actuary, the authors say a two-year increase phased in by 2050 would reduce CPP expenditures by about $15-billion a year and increase contribution revenues by $5-billion annually.
Benefits
There would be less pressure on governments to increase CPP contribution rates. It would also add workers to what is expected to be an increasingly tight Canadian labour market.
The political reaction
The idea appears to be a non-starter. “This is not on the table,” said a spokesperson for Mr. Flaherty. Liberal finance critic Scott Brison said a better option is his party’s proposal for a supplemental, voluntary CPP. NDP finance critic Thomas Mulcair said he supports incentives to encourage those who can to work beyond 65, but said a mandatory move would unfairly target the poor and those who work in manual labour.
