Later Retirement: A Win – Win Solution?

The C D Howe Institute have put out a study on later retirement by Peter Hicks, a former senior official with HRSDC and the OECD who has written a lot on the policy implications of ageing societies. I find this to be one of his less convincing efforts.

The argument – with parenthetical comments – is as follows.

1) Employment rates of older workers, including those over age 65 have been rising rapidly, and this trend can be expected to continue “without any policy action” (p.20). Indeed, employment rates can be expected to rise significantly higher and future retirees can be expected to work at least five years longer on average.  (A convincing case is made that current base case scenarios under-state the degree to which older workers will retire later.)

2.) The rise in employment rates has already been keeping pace “more or less” in line with increasing life expectancy. (True, p.3. The implication is that we are already set for an increase in expected proportion of the life course spent in paid work compared to the bottom reached about a decade ago.)

2) While not the whole story, an important part of the reason for later retirement is eroding employer pension coverage, low returns to savings and inadequate retirement savings for future senior age cohorts. (True, pp 8-9.).)

3) Later retirement will reduce cost pressures on public pensions and increase the supply of labour, greatly reducing the anticipated costs of population ageing.

Therefore, we should raise the age of eligibility for both the Canada Pension Plan and Old Age Security. (!!!)

The policy conclusion is a complete non sequitur. The problem of costs from ageing is exaggerated. There is a growing retirement income security problem.  Therefore, we should restrict access to public pensions even though they do not mean that people have to stop working, and even though the costs are manageable.

Even the author is unable to come up with a very convincing rationale, beyond saying that reforms are needed to “convey the message that it is no longer appropriate for public policy to include provisions that could distort people’s life course decisions in a way that favours people spending shorter periods of their lives in work.” (Note the last part of the sentence is contradicted in his own analysis in point 2. above.)

But what is the cost of “conveying a message”? Hicks concedes in passing that not all workers remain healthy well into old age, and that many of us still work in very physically demanding jobs and will not as older workers have skills which employers want. He hints vaguely at future adjustments to public pensions to deal with these problems.

But,  he says, we need to wave a stick even when it is not needed.


  • I would suggest the analysis needs to be placed in the the context of a rising CDN dollar.

    Some projections show the CDN dollar rising to $1.10 to the USD within two years with a possible increase to $1.50 within ten years.

    If one calculates the impact of such a rise on CDN commodity exports (other than energy), the impact on domestic manufacturing, the impact on the tourist industry, and the consquent double impact on the public purse (decreased revenues and increased income support) then I believe Canada faces a very bleak economic future. Couple this with a government that lies to Parliament, that appears to have little concern with policies other than those favourable to Alberta and the energy industry, that appears to favour the abrogation of collective bargining rights, and I believe that the quality of life enjoyed by Canadians in the future will be much less than that of today. And this will be true regardless of age cohort or employment status.

  • Normally, wouldn’t having “a very bleak economic future” cause the dollar to drop (unless the US is even bleaker)?

  • Darwin
    The “bleak economic future” is based on increased global demand for Canada’s energy exports. The result is what has come to be called the “Dutch disease” after the issues faced by the Dutch economy after the discovery of the Groningen gas fields. External demand for Dutch gas exports resulted in an increasing valuation of the guilder. This then impacted demand for Dutch exports and led to a decline in manufacturing employment. Those who were involved in energy exports did well; the rest of the Dutch economy fared poorly. It appears likely that Canada will follow a similar economic trajectory.

    My belief is that the outlook for the US economy is equally bleak but this will contribute to Canada’s future problems – our major trading partner will buy less from us, and will likely increase its export potential due to a lower labour cost base. If we embark on a “race to the bottom” I think the Americans win as they have a significant head start.

  • Speaking as a fan of leisure, I think that unless there is some significant economic cost it is absolutely appropriate “for public policy to include provisions that could distort people’s life course decisions in a way that favours people spending shorter periods of their lives in work.”
    Yay! Shorter periods of lives in work! That’s a public policy goal I can get behind.

    Meanwhile, I think it’s pretty stupid to be stopping people from retiring when unemployment is high. People want those jobs; you’re either going to be paying pensions or EI/Welfare. But being unemployed tends to do people harm, whereas people *want* to retire. Bump corporate taxes a point or two and give people a dignified retirement.

  • Frances Woolley

    Andrew, here’s where I’m coming from on this one. I know that the current system isn’t going to be there for me [insert Gen-X rant here]. The question is only: what is the least damaging cut? Cuts to home care/long term care for infirm seniors? Don’t want to cut that. Cuts to OAS and GIS for people in their mid 70s and older who can’t work? Nope, don’t want to cut that. Cuts to hip replacements and other surgeries that improve people’s quality of life? Nope. If I had to cut anything, it would be OAS/GIS at age 65 – it causes the least harm.

    Having said that, I strongly believe that there should be a standard retirement age, for university professors if for no one else. Way too many talented young people struggling to find work while far inferior teachers and researchers hang onto their positions.

  • There is no reason the current system shouldn’t be there for us, except for mindless Neo-liberal politics.

  • Frances, following your line of reasoning, why would you not support either lowering the income threshold of the clawback on OAS,or retaining age 65 as the age of access to OAS/GIS for seniors with low incomes? I am not in favour of either of those alternatives, but they would save a lot of money compared to the current system, and would be much more equitable than raising the eligibility age for everyone.

  • Frances Woolley

    Andrew –
    If we were currently at 67, would your #1 priority be to lower the age to 65, or would you rather do something like, say, raise the asset limits on social assistance? Or improve funding for home care or long term care?

    I just don’t see what’s special about 65 to 67 year olds, as opposed to 25 to 27 year olds, 35 to 37 year olds, 45 to 47 year olds, 55 to 57 year olds, etc.

    This is especially true now that we have regrettably decided to tear up the social contract in which the 65+ cohort gave up some employment rights in exchange for greater social protection through OAS, GIS etc. Now that 65+ means little or nothing in the labour market, the case for universal income guarantees becomes much weaker, as you rightly point out.

    That’s unfortunate, because as we both know, once something is no longer universal, it loses its most vocal and articulate advocates, and tends to get eroded over time…

    (By the way, for me this is personal, I’m just precisely the wrong side of this, so will be waiting until 67 myself).

  • OK Good point. But the odds of being in low income and of being unable to work full time do increase with age, despite rising longevity, so yes I do think we should treat older workers differently. Agreed though that any age cut off is pretty arbitrary.

  • Why not make TFSA income count as taxable income for OAS clawback / GIS qualification. Seems more reasonable than making us hard-done by GEN-Xers wait for OAS.

  • Frances:
    The Harper government seeks to spend 25 billion dollars on an aircraft which has no clearly defined mission.
    The F-35 is not a defensive interceptor. It is a “bomb truck.” It lacks stealth and range and is completely outclassed by the Russian PAK FA, the Indian version of the PAK FA, and the Chinese J-20.

    I am amazed at the outpouring of complaint over the fact of the Harper government “fudging” the cost data. This is exactly the reason the Harper government was found in contempt of Parliament and it is the precise reason we had the recent election. Why anyone voted for the CPC is beyond my comprehension.

    We could afford a great many things if we were better informed about what the government is doing and the ways it seeks to redirect our money toward fulfillment of its own ideological purposes rather than the needs of Canadians.

    As Andrew will recognize this is a variation on the “guns and butter” debate. We are trying to decide if we can afford a small pat of butter while the government is over there in the dark wasting large amounts of money on unnecessary guns. In the case of the F-35 they seek to spend your future OAS and CPP on something that is obsolete. Don’t let them do it.

  • RETIRE AT 65 OR 67 is amute point for many self employed workers.The difficulty I have digesting is the employee (ie government or teacher)who retires in their late 50’s with a full pension for live baced on their last 5yrs of employement or their best 5yr average.This group is in many cases are retired retired longer than they have worked.

  • The Old & The Youth face a dangerous cost of living while many cannot find job. Those with wages are slowly dying. “why any would voted CPC” because the youth or old were expecting prices to stay low, affordable till the economy was “over-heating” from improving job/wages.

    My parents went to college on a summer job, their parents bought a house for 7000$, an automobile for 100$, and gas was 18 cents a gallon, clothed fed educated 7 children

    Adusting wages for inflation, in real terms my gradfather earned a great in with less of an education without any student debt to pay off, with prices that made sense. Contrast that experience to our current society.

    Whoever gets a cost of living with rising standards of living Wins the heart & minds of Canadians, young an old.

    So were on a long term decline where wages do match prices while we watch the greatest transfer of wealth from poor & middle class to the rich. By the way I blame inflation, low interests; bureaucrats & speculators for this environment.

  • “I just don’t see what’s special about 65 to 67 year olds, as opposed to 25 to 27”

    Me on the actuarial table looks like 77 max. So you are talking about taking away 20% of my retirement. so yah 2 years of the last 10 years of my life is way different.

    And lets be clear, the reason they did not go after everyone is because it would have been political suicide.

  • With 74% of Canadians as a whole and 70% of seniors surveyed opposing the increase from 65 to 67, I would say that they have already committed “political suicide!”

  • I only just became aware of this exchange. Sorry for the delay in responding to Andrew.

    Basically Andrew does not dispute my facts, namely that employment rates for older workers have been rising steadily for many years now and are likely to continue to do so for at least another decade or so. What he objects to is the lack of a link in my article between my analysis that we should anticipate an increase in average retirement ages and my conclusion that the average age for public pension eligibility should rise.

    On re-reading the article, I agree that I should have made the link more explicit. I simply assumed that everyone would easily agree that providing univeral public pensions starting at age 65 when people will be soon be working on average to age 68 is simply bad public policy. Maintaining existing pension ages would be a big bonus to baby boomers and near retirees, a group that on whole simply does not need extra support.

    If we keep providing pensions at age 65 (or actuarial adjustments based on 65 as the norm) most older workers will have a happy choice. For example, they can take the OAS at age 65 when most are still working. This will increase their standard of living at that time, although many are likely to use the extra amount as additional retirement savings. Or, with the recently-announced budget changes, they can defer receipt of OAS and get an even larger pension when they actually retire.

    I can think of far more interesting ways of spending public money – e.g., in more targetted programs directed to the minority of older people who cannot reasonably work longer (a shrinking minority, but still important), on better long-term care, or better support for low income people before they become old.

    As I said, I mistakenly took this to be self-evident. I should have taken time to elaborate.

    Incidentally the exchange between Frances Woolley and Andrew is most interesting. It gets at the dilemma of having an important part of public support directed to a specific age group – when, in the real world, the issues being addressed are only loosely-related to age, namely support for people who cannot reasonably be expected to work longer and, more generally, public support for non-work time over the course of life.


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