National Post

No politics for old age

- Robert Brown Shantel Aris and

Low fertility rates, increasing life expectanci­es and the aging of baby boomers are causing Canada’s old- age dependency ratio to rise. This increase in pensioners relative to the working- age population will strain the sustainabi­lity of our social security system. Should the age of eligibilit­y ( AOE) for seniors’ programs be raised? If so, when? Since Ottawa seems to be avoiding the problem, we propose a politics- free solution.

We propose that Ottawa adopt an automatic balancing mechanism that would automatica­lly adjust the AOE for programs like Old Age Security ( OAS) and Canada Pension Plan ( CPP) based on demographi­c calculatio­ns outside of political influences. The formula would deem that a constant proportion of one’s adult life be spent in retirement. Thus, as life expectancy rises, there would be an automatic upward shift in the AOE for social security.

Increases in AOE are not new. Australia, France, Ger- many, Italy, Britain and the United States are currently raising their equivalent pension ages to 67 or higher. Here in Canada, the Trudeau government, in 2016, reversed a controvers­ial decision by the former Conservati­ve government that would have had the AOE for OAS and Guaranteed Income Supplement ( GIS) benefits gradually rise from 65 to 67. But earlier this year, the government’s own Economic Advisory Council brought the topic back onto the table and recommende­d that Ottawa raise the AOE for social security.

Our study, inspired by actuarial work in the United Kingdom, recommends adopting a formula yielding a constant 34 per cent of one’s adult life spent in re- tirement. Using 34 per cent triggers the first change in the AOE in 2025, which provides enough notice for current workers to respond. The new AOE of 66 ( phased in beginning in 2023 and achieved by 2025) would then be constant until 2048 when the AOE should shift to age 67 over two years.

These shifts soften the rate of increase in the oldage dependency ratio and bring lower OAS/ GIS costs and lower required contribu- tion rates for the CPP ( both Tier 1 and Tier 2). This, in turn, results in equity in financing retirement income programs across generation­s and a higher probabilit­y of sustainabi­lity of these systems. There will also be an increase in the credibilit­y of these systems in the public’s eye and an easing of public anxiety.

Possibly, contributi­ons to the CPP/ QPP could be reduced by close to 0.5 percentage points from the current level of 9.9 per cent. Or the contributi­on rate could stay at 9.9 per cent and benefits could be slightly improved.

One i mportant s ocial issue would have to be addressed. Shifting the AOE upwards would be regressive socially since wealthier Canadians live longer. Thus, an upward shift in the AOE would have a greater impact on poorer workers. This can be significan­tly mitigated by changing the clawback formulae now used in the OAS and GIS.

The most important message is that decisions with respect to the AOE should be taken out of the political process, and beyond political interferen­ce.

Robert L. Brown is professor emeritus, University of Waterloo and Shantel Aris is an actuarial analyst. They are co- authors of “Greener Pastures: Resetting the Age of Eligibilit­y for Social Security Based on Actuarial Science,” published by the C. D. Howe Institute.

OTTAWA SHOULD ADOPT AN AUTOMATIC ADJUSTMENT FOR THE AGE ELIGIBILIT­Y FOR SENIORS’ PROGRAMS, FREE FROM POLITICAL INFLUENCES.

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