Pensions and retirement income issues do not play a large role in the 2019 federal election party platforms. The shared assumption is that existing arrangements are working reasonably well, although some platforms do call for incremental changes of varying magnitude to the programs and tax measures that constitute the retirement income system.
Yes, the retirement income system does a good job in meeting its objectives for most, although not all, seniors, a conclusion we reached in complementary papers (Hicks, Baldwin) written this past spring. There is not likely to be any crisis in that system within the mandate of the next government.
Even so, there is a need to start actively planning for reforms in the long term. The problem is that some people are not likely to save enough for the long period of life that is now spent in retirement. Conversely, an increasing number of people could end up saving more than they need, and could stand to reduce their contributions to retirement savings during their working lives. In the absence of reform, the living standard of retirees, particularly for the very oldest, are likely to gradually fall relative to that of the whole population.
The implicit assumption in the party platforms is that pension reforms should proceed by making standalone changes to the many programs and tax arrangements that comprise Canada’s retirement income system. However, this assumption ignores the elephant in the room, namely the shift that is taking place away from historical patterns, where most people retired at, or before, the standard age of eligibility for pension benefits. In the new pattern, most people will retire after they become eligible for pensions. The implications affect all retirement income programs and could be significant on many fronts, including under- and over-savings for retirement, labour force supply, inequality among seniors and pension financing. These effects, and their policy consequences, can only be understood by assessments taken at the level of the retirement income system as a whole, not by examinations that focus only on the separate program components.
Recent labour-force projections by Statistics Canada illustrate the scale of the shift. Labour-force participation rates have been rising in older age groups since the mid-’90s. By 2024, only five years in the future, 36 percent of people age 65 to 69, will still be in the labour force. That is, large numbers of people will be working after the standard age of 65 at which public pension benefits are currently anchored. (By anchored at age 65, we mean that some pensions such as the CPP can be received earlier or later than age 65, but the amounts received will be reduced or increased, respectively, based on the “normal” age of 65.) Many pension recipients will be working full-time and earning at lifetime highs. If pension benefits continue to be anchored at age 65, a significant and growing portion of the benefit payments will soon be supplements to earnings from employment rather than income supports in retirement.
The implications of these changes in people’s working life behaviour will start to be felt during the mandate of the next government. That will be an ideal time to launch an evidence-based consultation exercise that can help build consensus around policy changes that could result in major benefits by bringing the eligibility rules for retirement income into line with the actual changes that are taking place in the way people are spreading work over the course of their lives.
With the development of consultation strategies based on strengthened data and analysis, there are many desirable outcomes that could result. These include lower pension contributions for some, higher pension benefits for others, a reduction in inequality between seniors who have both a salary and a pension and those seniors who struggle to find jobs and cannot work longer, and greater protection for those in this latter group who, because of low skills, poor health or layoffs, cannot work longer in life.
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System-wide assessments of the varying income and work situations of current and future seniors are a precondition for successful reform. A monitoring and review capacity in this area is needed, obviously. Yet, surprisingly, it does not exist. Well-developed, useful mechanisms are now in place to monitor the costs and financing of various pension programs. However, there is virtually no corresponding capacity to examine the combined effects of those programs on individuals.
Let us quickly review the party platforms as they relate to the retirement income system, particularly on items that touch on the age of entitlement for retirement benefits or the need for a holistic examination of possible changes to our retirement income system:
- The Liberals call for an increase in survivors’ benefits and a 10 percent increase in Old Age Security (OAS) when people reach age 75. Older seniors, particularly women, represent an area where reform is needed, as we have identified in our papers.
- The Conservatives have called for a modest increase in the amount of the non-refundable tax credit in the personal income tax system that is currently provided to people age 65 and older, and have stated that 65 will continue to be the age of eligibility for Old Age Security.
- The New Democrats call for: putting pensioners at the front of the line when a company goes bankrupt; creating a mandatory, industry-financed pension insurance program; protecting defined benefit pensions in the public sector; and making automatic enrollment in OAS and Guaranteed Income Supplement (GIS) retroactive. Of particular interest is a proposal to create a Pension Advisory Commission to develop a long-term plan to protect and enhance OAS, boost the GIS, and strengthen the Canada Pension Plan (CPP).
- The Greens call for greater protection of pensioners in cases of company bankruptcy and for increasing over time the target income replacement rate of the CPP from 25 per cent to 50 percent of income received during working years.
- The Bloc Québécois calls for increasing OAS and GIS, including indexing OAS to wages as well as increasing the protection of pensioners in case of bankruptcy.
- The People’s Party of Canada has no platform planks on this topic at the time of writing.
In short, with the possible exception of the Conservative commitment to keep the age of eligibility for OAS at 65, there is nothing in the party platforms that would preclude the next government from following-up on its platform commitments and also in setting in motion a process that would build consensus around the longer-term reforms that are needed in the retirement income system. Such a process would be based on stronger empirical evidence than now exists, with particular emphasis on the shift to later retirement and on the situations of different groups of current and future retirees in light of all their sources of retirement income.
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