My grandfather Mike Georgetti worked at a manual job until he could work no more and then, worn out, he retired without a pension. He had four kids and he and my grandmother had to rely on them to support him in his old age.
I was thinking of my grandfather on March 29 when the Conservative government announced in the budget that it will raise the age at which Canadians can receive Old Age Security (OAS) benefits from age 65 to 67.
Many workers are employed in physically demanding or otherwise stressful jobs from which they want and deserve to retire by age 65. Others are unable to work past that age due to illness, disability, or the need to care for a partner. These people want to retire but many are forced to stay in the workforce because they can't afford to leave. In fact, one in four persons aged 65 to 70 remain in the work force today, double the level a decade ago.
The real issue here is not about the age of retirement but rather about income in retirement. About one half of workers with medium level earnings will experience a serious drop in their standard of living when they retire. That is a disturbing prospect. OAS provides only a basic pension income of just over $6,000 per year. It makes no sense to scale back this small but essential element of the retirement income system, as the Prime Minister proposes to do.
Canadians have repeatedly been told that they can rely on a combination of public pensions and their private investments for a secure retirement. But it hasn't worked out that way. Canada's public pensions -- OAS plus the Canada Pension Plan -- provide a combined maximum income in retirement of less than 40 per cent of the average wage. That is one of the lowest earnings replacement rates in any advanced industrial country.
The theory has been that the remaining income gap can be made up by a combination of workplace pension plans and individual savings such as RRSPs. But the system has not delivered as promised. Two thirds of all workers no longer have access to an employer pension plan because employers either won't provide them or have shut them down. As for RRSPs, few people have been able to save enough because returns are low, due mainly to the money eaten up in high financial management fees.
We do have a looming pension crisis in Canada, not because people are retiring too early but because their combined pension and investment income will still see them retiring into poverty. Rather than attacking the OAS, the federal and provincial governments should be working together to improve our public pension system through a gradual expansion of the Canada and Quebec Pension Plans. The CLC, along with retiree and citizens' groups, has been advocating this option for several years now but the federal government has not been listening.
An enhanced CPP/QPP has many advantages. We can double future benefits for today's young workers through a modest, phased-in increase in contributions over a period of time. Pension experts say the CPP is actuarially sound for at least the next 75 years (meaning it is guaranteed to deliver as promised).
These plans are paid for entirely by contributions from workers and their employers rather than from tax revenues. They do not cost governments a cent. It is workers and their employers who ought to be the ones putting aside money now to ensure a decent income in retirement and an enhanced CPP/QPP will allow them to do so in the safest and most effective way. My grandfather would have said amen to that.
Expanding the CPP/QPP would also reduce future costs of the Guaranteed Income supplement, which is paid to low income seniors. We should think hard about the unfairness of the tax bill that today's young workers will face as more and more retirees are forced to draw on taxpayer-funded GIS benefits if we don't act now. In addition, an enhanced CPP/QPP would ease the pressure on provinces to support low income seniors and allow those jurisdictions to fund other hard-pressed social programs.
The federal government should hold off on its unilateral and ill-considered changes to OAS and agree instead to a national summit that would give serious consideration to the important issues of pensions and retirement.
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