Canada should consider raising the age of eligibility for public pension benefits in order to persuade more seniors to keep working, argues a new report by the C.D. Howe Institute.
It notes with increased life expectancy and the working-age population remaining relatively stable, the growing demand for financial support in retirement could strain social security programs. “We know that because of low fertility rates, rising life expectancy and the aging of the baby boom, Canada’s old-age dependency ratio is rising,” according to Robert L. Brown and Shantel Aris, who co-authored the report. “This will strain the sustainability of our social security systems and health care.”
In fact, other countries, including Britain, Finland, Norway, Poland and Sweden, have already changed their age of eligibility for social security benefits, said the authors.
Inspired by work Britain has done on the issue, Brown and Aris applied actuarial and demographic logic to the Canadian context to see if a rise in the age of eligibility would guarantee a constant proportion of one’s adult life spent in retirement. “For Canadian demographics, that constant proportion is 34 percent,” said Brown.
Using the constant proportion of 34 per cent, the authors said the first change in the age of eligibility — from 65 to 66 years old — should be phased in between 2023 and 2025. The new number would be effective until 2048 when the age of eligibility should shift to age 67 over two years, according to the report.
Brown and Aris said reviewing the age of eligibility is important if Canada wants to increase the probability and credibility of a sustainable social security system, enhance intergenerational equity, lower the overall costs of social security and nudge workers to stay in the labour force for a little longer.
But the report notes that increasing the age of eligibility might come with an issue as wealthier Canadians live longer. However, its authors argued this can be addressed by changing the claw-back formulae currently used in the old age security and guaranteed income supplement programs.