Liberals should consider factors beyond economic advisory report
A recent report by Prime Minister Justin Trudeau’s economic advisory committee is suggesting that the government should defer retirement benefits until age 70. It’s a sticky situation for the prime minister, who, in March 2016, reversed a decision by the Conservative government to raise the retirement age from 65 to 67.
Looking across other countries that belong to the Organization for Economic Cooperation and Development (OECD), very few have a higher retirement age than Canada, with most ranging from 60 to 65 years.
But Canada’s demographics are changing. In 2016, 15.9 per cent of Canada’s population was aged 65 or over. This number is expected to increase to 22.6 per cent by 2041.
We can’t deny that Canada is getting older. However, simply raising the retirement age isn’t a sustainable solution. What happens if the population continues to age after that? Do we continue to push the retirement age higher?
As Prime Minister Trudeau put it when he was undoing the Conservatives’ plan to to raise the retirement age, it’s a “simplistic solution to a complex problem that won’t work.”
Some have argued that many Canadians over 65 “want to work more.” That’s fine, but the issue here isn’t whether people over 65 are allowed to work—it’s whether they need to. And given the absence of any study proving that the vast majority of Canadians over 65 would prefer to work, we can hardly rely on this rhetoric.
So what can be done? First, recall that the Canadian pension system is a mixture of federal and provincial money, combined with optional private plans. The government can make sure each of these parts is running smoothly under the current framework.
One issue the government could look to address is the private component of the Canadian pension system. These days, stable jobs with good pensions are in shorter supply. An OECD report from 2015 also notes that the private pension landscape generates “complexity” and “inefficiencies,” which the government could try and improve to get better outcomes.
The report also notes that basic pension benefits are indexed to inflation, not employment growth, which could lead to more efficiency as it better reflects wages.
By optimizing the different parts of the Canadian pension system, the government would reduce the strain on federal contributions while making things easier for citizens, and setting a more useful agenda going forward.
It could also address the root cause of the problem: the country’s aging population. If the population’s rate of aging can be slowed, by more immigration for example, then stresses on the pension plan will be eased significantly.
There are a whole host of other avenues we need to explore, and we can’t do that if we focus on one prescribed solution.
The Canadian pension system is a complex puzzle that will take a lot of effort to solve, so let’s not assume we know the answer before we’re done asking the question.