This is part of the Globe and Mail's week-long series on baby boomers and how their spending, investing, health and lifestyle decisions could affect Canada's economy in the next fifteen years. Is Canada ready for the boom?
For more, visit tgam.ca/boomershift and on Twitter at #GlobeBoomers
What economic impact will Canada's baby boomers have as they move into old age? The question posed by this week's series is especially pertinent, since the new federal government will soon be looking at options for pension reform.
There is a widely held view among economists and demographers that population aging has largely negative consequences, yet recent studies come to very different conclusions.
The accepted wisdom is rooted in analysis from the 1990s. The thought then was that population aging, together with trends toward earlier retirement, would eventually cause serious problems in a number of areas: unsustainable health costs, labour shortages, massive increases in old-age transfers and entitlements.
That narrative, though still widely accepted, is no longer supported by the evidence. Beginning in the mid-1990s, the trend toward earlier retirement began to reverse. There has been a steady and dramatic increase in employment rates among people in their 60s; nearly one-third of men and one-fifth of women now continue working between 65 and 69. The length of working lives for people over 50 has increased, while the average length of retirement has remained stable, despite increasing longevity.
This is important for pension policy, particularly regarding under- or over-saving for retirement. Yet most current analysis fails to take this evidence into account and assumes that ever-longer retirement durations remain a main challenge for pension policy.
Why have policy analysts so thoroughly ignored these trends?
In a recent article I wrote for the online magazine Policy Options, I suggested that this flows from the interplay among three factors: the way policy is structured into separate silos, the short time frames most analysts work with, and the higher priority given to maintaining policy momentum rather than to conducting necessary analysis.
This inertia reinforces an outdated view of the world that sees policy in terms of averages, not individuals. Policy is seen to address the broadly defined needs of broadly defined groups of beneficiaries, in a broadly uniform manner, at a single point in time. We have missed just how much real-world experiences have changed. For example, we see a growing demand for greater flexibility over the course of a worker's life, which might include staging retirement in phases to better handle care-giving for elderly parents, or delaying retirement altogether to take advantage of a different mix between leisure and saving goals.
The real world consists of individuals with diverse characteristics, not abstract averages. Tomorrow's policy goal should be greater effectiveness in helping individuals pursue their goals and achieve their full potential over the course of their lives. This is more than rhetoric. In an essay published last spring by the Institute for Research on Public Policy, I described a strategy for rejuvenating social policy in Canada along these lines, one that could be world-leading while still being practical and gradual.
In the more immediate context of the major pension debate facing the new government, an obvious question to think about is how the increasing trend toward working longer will affect retirement security. What we do will have lasting implications.
For example, without a shift in our thinking about age 65 – when people become eligible for most pension and age-related income transfers – we will soon find ourselves in a situation where a large number of boomers are both working and receiving pension income at the same time. Not only might this result in people having been forced to save more than they needed to earlier in life, but in the context of Old Age Security and other publicly funded entitlements, it may also work against efforts to address income inequality. Given what we know about life expectancy, those best positioned to work later in life are also likely to be those with higher levels of education and income.
The full extent of these problems is not yet known because we simply have not undertaken the analysis, nor effectively challenged conventional wisdom. This is where the biggest boomer shift is still yet to happen – in our research and policy thinking. If we want to know what the future will look like, we need to start with a fresh approach.
Peter Hicks is a former assistant deputy minister of policy for several federal government departments and central agencies, mainly in the area of social and labour-market policy. From 1995 to 2001, he worked for the OECD in Paris, co-ordinating its activities on the policy implications of aging societies.