Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

By 2031 -- at the peak of the baby-boom retirement wave -- the share of GDP spent on Old Age Security will rise to 3.14 per cent, for an increase of 0.73 per cent over today’s level.

Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail

Kevin Milligan is Associate Professor of Economics at the University of British Columbia



In his address to the Davos Economic Forum, Prime Minister Harper raised the issue of major reforms to Canada's public retirement income system. If a pension debate is upon us, then let's start with a look at some facts about the federal system of public pensions.



Currently, the core Old Age Security pension is available starting at age 65. The Guaranteed Income Supplement, paid to about a third of seniors, begins at age 65. The Allowance is paid from ages 60 to 64. The Canada and Quebec Pension Plans allow reduced pensions to begin at age 60, with 'full' pensions at age 65. The Prime Minister explicitly (and correctly) pointed out that the Canada Pension Plan is not in financial difficulty. Instead, the target of reform appears to be Old Age Security.

Story continues below advertisement

If Canada does consider a change to retirement ages, we would not be alone. Among the G8 countries, the United States, the United Kingdom, Italy, Germany, and France have already made upward changes to their retirement ages. In Japan and Russia, it is being discussed.



Is Canada really different? No and yes.



Canada is not different because, in common with most other countries, Canadians are living longer. For men, a 65 year old in 2007 could expect to live another 18 years to age 83 -- a full 5 years longer than was the case in 1967. Women's life expectancy at age 65 has also increased by 5 years. This improved longevity means that existing pension promises become ever-more expensive.



On the other hand, Canada is different because, unlike most other countries, our public pension commitments are not a substantial threat to our public finances. The Canada Pension Plan is in long-run balance. Old Age Security currently takes only 2.41 per cent of GDP. Very few OECD countries have lower levels of public pension spending as a share of GDP than Canada. To take the extreme example, Italy spends more than 14 per cent of GDP on public pensions -- up from 10 per cent only a few years ago.



How will spending in Canada grow as the baby boomers age? By 2031 -- at the peak of the baby-boom retirement wave -- the share of GDP spent on Old Age Security will rise to 3.14 per cent, for an increase of 0.73 percentage points over today's level. Now, an increase of 0.73 per cent of GDP cannot be ignored, but neither is it disastrous. To provide some scale, David Dodge and Richard Dion project that spending on health will grow from 12 per cent to 18.7 per cent of GDP by 2031, for an increase of 6.7 percentage points. In the fight for government spending dollars in 2031, health is the elephant and the Old Age Security pension is the mouse.



Whatever the fiscal savings of pushing up the Old Age Security retirement age, we also must consider the cost. The wellbeing of Canadian seniors has improved tremendously over the last 40 years -- higher incomes, better consumption, and healthier lives. However, in the years approaching retirement ages, an increasing number of Canadians are unable to work due to disability, declining job skills, or other reasons. In research in progress, I am finding that around three quarters of those not working in the years just before reaching age 65 have other sources of income sufficient to get them out of low-income range. Of course, the flipside is that one quarter of them do not. If the retirement age increases, these Canadians may suffer as they wait for their public pension cheques to begin flowing.



Kevin Milligan's recent posts can be viewed here.

Story continues below advertisement



Economy Lab, winner of the 2011 Eppy Award for best business blog. Follow Economy Lab on twitter

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies