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The survey found only 18 per cent of pension plans in Canada were fully funded as of March 30, which a sharp decline from a year earlier, when 36 per cent of pension plans were fully funded. (iStockphoto)
The survey found only 18 per cent of pension plans in Canada were fully funded as of March 30, which a sharp decline from a year earlier, when 36 per cent of pension plans were fully funded. (iStockphoto)

TAMMY SCHIRLE

What the Liberal victory could mean for your pension plan Add to ...

Tammy Schirle is an associate professor of economics at Wilfrid Laurier University.

Are you a widow? Divorced? Born after 1958? Expecting to retire some day? After the first 100 days under the incoming new government, you can expect important changes to your public pension. While the Liberals will focus on tax changes and climate change for the first 100 days, there are big plans on the table for the core of Canada’s public pensions.

Some changes should be relatively easy to implement. The Liberals have promised to restore the future eligibility age for Old Age Security and the Guaranteed Income Supplement from 67 to 65. The fiscal implications of the change are not incredibly demanding – OAS expenditures currently represent 2.38 per cent of gross domestic product and are projected to peak at 2.77 per cent in 2033. Restoring OAS eligibility at 65 will not be disastrous.

The question remains whether to continue with increased benefits for those who defer collecting OAS to later ages. Currently, individuals can defer benefits for up to five years and enjoy a monthly benefit that is up to 36 per cent higher. This offers greater flexibility to today’s seniors – who are often healthier and living longer than seniors did in the past – without preventing access to OAS for those who need the benefits earlier. There have been arguments in favour of indexing eligibility ages to life expectancy, as is currently done in other countries. However, without better supports for seniors with below-average health (who also tend to be our poorest seniors), such indexing can seriously harm some of our most vulnerable.

The Liberals have also promised to raise GIS benefits for single low-income seniors. This move can be expected to lift some of our most vulnerable seniors out of poverty. Senior poverty rates in Canada are low by international standards, recently around 6 per cent, largely because current OAS and GIS amounts for married couples are sufficient to keep many seniors above Canada’s thresholds for low income. The amounts paid to single seniors, however, lag far behind. More than one million single seniors will enjoy the extra cash. The promised increase, raising annual benefits by about $1,000, isn’t enough to lift our poorest single seniors out of poverty, but it gets them closer.

The most challenging element facing the Liberals involves the Canada Pension Plan. The finance ministers last met in 2013 to consider CPP reforms, with huge support from some provinces. Prince Edward Island proposed a plan to raise CPP’s replacement rate by 15 per cent (exempting low earning) and expand the level of earnings covered. Fellow economist Kevin Milligan and I have pointed out that the PEI plan results in after-tax and transfer income replacement rates very similar to a simpler plan of merely expanding the level of earnings covered by CPP and keeping a replacement rate of 25 per cent.

Given the negative response of the federal government, Ontario chose to push forward with its own plan. The Ontario Retirement Pension Plan has thus far been designed in a way that is similar to the PEI plan, except that it would apply only to workers who don’t contribute to an approved employer-sponsored pension. Ontario has always been clear, however, that the preferred option is CPP enhancement, so we should expect ORPP plans to be put on hold.

Justin Trudeau’s new minister of employment and social development will be tasked with bringing together the provinces and figuring out what to do with our pensions. This will be a slow process. There are clearly diverging views about whether an expansion is needed and, if an expansion occurs, what shape it should take. At turtle speed, perhaps, the race begins now.

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