Retirement age needs to be 70: think-tank
Paul Vieira
Financial Post
Published: Thursday, July 02, 2009
OTTAWA — Immigration to Canada would need to more than double from current levels, surpassing 600,000 a year, to offset the drag on living standards from an ageing population — a scenario that is “unrealistic,” a prominent think-tank warns in an analysis.
As a result, policymakers need to focus on potentially controversial initiatives that would delay the normal age of retirement, from 65 to 70, and persuade Canadian families to have more children, says the C.D. Howe Institute-issued paper, released Thurday.
Further, governments must revisit the country's lacklustre productivity growth, which has taken a backseat as legislators have crafted policies aimed at mitigating the impact of the financial crisis.
William Robson, the think-tank's president, said the changing demographics have to be dealt with because left unchecked, growth in the workforce and economic output will slow.
Furthermore, working-age households will have more of their income tapped by governments to cover the increased costs associated with paying out pension benefits and health-care for Baby Boomers.
“One of the concerns you have to have is that if people think immigration is going to solve the problem, they aren't going to look at anything else,” Mr. Robson said.
But, he warned, policy makers need to look at other options. Based on scenarios and simulations the think-tank conducted, it found Canada would need “huge” increases in immigration — roughly 2.5 times the current pace, of roughly 225,000 and 255,000 per year — to offset the number of elderly people expected to leave the workforce.
That type of increase is “unrealistic,” the C.D. Howe study concluded.
Canada is not alone in dealing with the impact of an ageing population. In the United States, the White House is looking to revamp the health-care system on the fear that its Medicare program could become insolvent in less than a decade as demand from retired Baby Boomers escalates.
Under roughly status quo conditions, the think-tank suggested the so-called old-age dependency rate — or the ratio of Canadians 65 and over to those of working age — will skyrocket from its current 21% level to over 45% by 2058.
To delay and mute the rise of the dependency rate, policy makers should look to policies that delay the retirement age, to 70, and promote higher fertility rates.
The study said advances in longevity and shifts toward later entry into the workforce means that the equivalent of working until age 65 in 1970 is now working until at least age 70. “A later … retirement age would provide a medium-term boost to workforce growth,” the study said.
Mr. Robson noted Ottawa has moved in the right direction with changes to the Canada Pension Plan, announced in May, that reward Canadians who delay retirement until age 70 with richer benefit.
But he said more is needed, including an official change to the retirement age to 70. But he acknowledged that would be politically unpopular and could spark a war with public-sector unions, whose members are entitled to collect their rich defined-benefit pensions at 65.
Further, Mr. Robson said politicians should look at ways at boosting fertility rates. Quebec attempted to increase family sizes in the late 1980s with a bonus of up to $8,000 per birth of a child.
“There's no debate about at all, it is almost like a taboo subject — but I don't think that's reasonable at all,” Mr. Robson said.
In the end, however, the study indicated one of the best options available to government is to try and improve growth in labour productivity, or the output per hour of worked. Productivity rose 0.3% in the first quarter, the largest such gain in two years.
“Unlike later retirement, faster productivity growth involves an ongoing, rather than one-time shift,” the study said. “And unlike higher fertility, it increases incomes without increasing the number of people among whom the higher incomes must be divided.”
