01/30/2012 04:50 EST | Updated 03/31/2012 05:12 EDT

Harper And The Public Pension Crisis: Experts Question Severity Of Problem


OTTAWA - To hear the prime minister and his cabinet talk, Canada's public pension system is unsustainable and needs major repair — likely in the form of a higher eligibility age for Old Age Security payments.

But number-crunching and projections by many economists and by the federal government's chief actuary suggest the sustainability problem is not severe.

And experts say raising the eligibility age risks hurting the most vulnerable in society.

"In order to have a system that's still in place and viable and sustainable 10, 20, 30 years from now, we need to make changes today," Government House Leader Peter Van Loan said Monday.

He was expanding on Stephen Harper's announcement last week that he would soon act to ensure the future of unfunded portions of the retirement income system.

Van Loan and Harper say no one who is already retired or close to retirement will see benefits slashed. But officials have made clear they are looking at Old Age Security over the medium and long term, since costs are expected to soar over the next few decades — even as the number of taxpayers dwindles.

The government points to the chief actuary's latest report that shows the combined cost of OAS and the Guaranteed Income Supplement rising to $108 billion in 2030 from $41 billion this year.

But since the economy is growing at the same time, the same report shows that those programs cost about 2.41 per cent of gross domestic product this year and will rise to about 3.14 per cent in 2030.

That's the peak. After 2030, the costs — measured as a share of the total economy — slide back slowly to reach today's levels again by about 2055.

"I don't think there's the problem that some people think," said Byron Spencer, a demographics economist at McMaster University in Hamilton.

He and his colleague Frank Denton have dissected the numbers and projections and found that, if Ottawa made no changes to any retirement benefits, taxpayers' contributions would have to increase to ensure other programs weren't cut.

Taxpayers currently contribute about 6.2 per cent of their wages to pay premiums into the Canada Pension Plan and in taxes to cover the general cost of OAS and GIS benefits. Twenty years from now, taxpayers would have to contribute about 12.5 per cent of their wages for the same package of retirement benefits, the researchers found.

"There's a trade off," Spencer said. "We could maintain the system as it is, and that would mean roughly doubling the contribution rates for the retirement income system as we have it at the moment ... or we could have people receive those benefits at a somewhat later age."

Officials say they are eyeing other countries' experiences with gradual increases in the retirement age, to see what Canada can learn.

In the United States, the government decided in the 1980s to move the retirement age from 65 to 67, but didn't start implementing the policy until 2003. Now, the retirement age is inching up by one month a year. The policy won't be fully implemented until 2025.

In Sweden, the retirement age is indexed to life expectancy.

The United Kingdom, Australia and some European countries have also adopted a slow, gradual approach to raising the age at which seniors can start collecting public pension benefits.

Even a gradual move can be jarring to a country's psyche, says Spencer.

"The big question of whether to keep age 65 as a fixed marker is a real question. It's been in place since Bismarck, since the late 1800s."

Raising the eligibility age to 67 is more than just a mental hurdle for many low-income workers, however.

The people on the low end of the income scale have shorter life expectancies than richer people, notes Andrew Jackson, chief economist for the Canadian Labour Congress and one of the country's top experts on retirement security.

For many low-skilled jobs, manual labour is difficult to sustain after the age of 65, he adds.

And since the Guaranteed Income Supplement for low-income seniors is tied tightly to receiving OAS, Ottawa can't really raise the age for one program without raising the age for the other, Jackson said.

"For people on a low income, they're really going to lose out."

OAS and GIS have been widely credited for keeping poverty at bay for tens of thousands of seniors, adds Matthew Mendelsohn, director of the Mowat Centre for Policy Innovation in Toronto.

So any changes in federal policy should be shaped to make sure poverty among seniors is not exacerbated, he said.

"It's often people who have worked (low-skilled) hard jobs who are more in need of the public system when they turn 65," he said. "It is they who would be more severely penalized by changes."

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