Finance Minister Jim Flaherty is expected to announce in Thursday's federal budget that the age requirement to collect Old Age Security will increase to 67 from the current age of 65. Economy Lab bloggers Kevin Milligan of UBC, Frances Woolley of Carleton and Rhys Kesselman of Simon Fraser University have written on OAS since Prime Minister Stephen Harper first hinted at the increase during a speech in Davos in January. Here are some facts, figures and quotes from their posts on the state of Canada's retirement system:
How the retirement system currently works:
The Old Age Security pension begins at age 65. About 33 per cent of seniors receive the Guaranteed Income Supplement, which also begins at 65. The Allowance is paid from ages 60 to 64. Both The Canada and Quebec Pension Plans allow for reduced pensions to begin at age 60, with 'full' pensions at age 65.
Funding the retirement system v. demographics:
In 2007, a 65 year old male Canadian could expect to live to 83, five years longer than in 1967. Women's life expectancy at age 65 has also increased by five years. Hence, existing pension promises become more expensive. Luckily, Canada's public pension obligations don't pose a major threat to public finances. The Canada Pension Plan is in long-run balance. Old Age Security currently takes only 2.41 per cent of GDP. By comparison, Italy spends more than 14 per cent of GDP on public pensions -- up from 10 per cent only a few years ago."
Among the G8 nations, the U.S., the U.K., Italy, Germany, and France have already made upward changes to their retirement ages.
By 2031 -- the peak of the baby-boom retirement wave -- the share of GDP spent on Old Age Security will rise to 3.14 per cent. But compared to health care spending, the increase is small. One study co-authored by former Bank of Canada governor David Dodge projected that spending on health will grow from 12 per cent to 18.7 per cent of GDP by 2031.
"In the fight for government spending dollars in 2031, health is the elephant and the Old Age Security pension is the mouse."
-- Kevin Milligan
The Key debate -- Intergenerational fairness:
As Rhys Kesselman points out, it will be, "younger cohorts who will have to bear the burden of baby-boom retirees."
In 2009, there were 4.6 million Canadians collecting Old Age Security. By, 2060, the Office of the Superintendent of Financial Institutions (OSFI) predicts there will be 12.16 retirees seeking OAS payments.
"Reforms of the nation's retirement income system should also consider equity in two other important dimensions: between lower and higher income retirees and between higher and lower savers among workers of each cohort."
-- Rhys Kesselman
When will the changes be implemented?
It's not likely the government will raise the retirement age immediately, instead opting for a phased-in approach. Frances Woolley has predicted that the increase in pension age must be in place by 2024. Why?
"1959 saw the highest number of births ever recorded in Canada: 461,703 babies. After that, the number of births fell slightly, and then dropped sharply...For an increase in the pension age to achieve substantial cost savings, it will have to be in place when those 1959 babies hit 65 in 2024."
Sources and more reading: