1. Byron G Spencer McMaster University Presentation at the Annual Conference National Initiative for the Care of the Elderly University of Toronto 24 May 2012

2. Joint work with Frank Denton Suddenly thrust into policy debate! But a different take

3. Outline Future population and labour force Extent of aging that is in prospect Overview of the retirement income system Relative importance of the public component Gains in life expectancy Changes in age of pension eligibility? Cost implications for public plans

4. Population – size

5. Population – size and rate of growth

6. Labour force – size

7. Labour force – size and rate of growth

8. Proportion 65 and older

9. Population aging is inevitable!

10. Even doubling immigration would still result in substantial population aging

11. -- as would much higher fertility

12. -- as would re-defining ‘old’

13. Canada’s retirement income system Old Age Security/ Guaranteed Income Supplement (OAS/GIS) Canada/Quebec Pension Plans (CPP/QPP) Private Registered Retirement Savings Plans (RRSPs) Employer Pension Plans (EPPs) Own savings

14. Public plans Annual benefits ($)Cost ProgramMaxAvg ($b)Source of fundsEligibility _____________________________________________________________________________________________________ Old Age Security (OAS) 6,481 6,10028.5General revenues65+ Guaranteed Income Supplement (GIS) 8,788 5,8978.0General revenues65+ and low income Spousal Allowance 12,309 5,0030.5General revenues60-64, spouse 65+, low income CPP/QPP Retirement pension 11,840 6,15231.8Contributory65 is NRA; +/- 30% at 70/60 CPP/QPP Total42.2 ____________________________________________________________________________________________________ Notes: GIS values are for a single person, Allowance for all recipients; values as of late 2011. The "cost" column show forecast expenditures for 2010-11.

15. OAS, GIS, and CPP/QPP benefits as percent of pre-retirement income Source: Baldwin (2009)

16. Gains in life expectancy – and age of eligibility The CPP/QPP was introduced in 1966 Since then life expectancy has increased And the typical age of retirement has decreased Baby boom generation is transitioning into retirement A bad combination? possibly large increases in the burden of support, and inequities across generations

17. Living longer, retiring younger “It is indeed remarkable that, despite increases in longevity, the effective age at which workers retire has tended to follow a downward trend in virtually all OECD countries, at least until recently.” (OECD, 2009)

18. Population outlook – and gains in life expectancy

19. Age Distribution of the Population in 2010 and Projected to 2035, With and Without Gains in Life Expectancy Note: The population is shown in five-year age intervals; see note to Table 1.

20. Implication: Take gains into account  The CPP/QPP introduced in 1966; 70% of males could expect to live to 65  By 2010 that proportion increased to 87%  And those who reached 65 could expect more years in retirement  By 2010 26% more males survived to age 65 and they had 32% more years of (expected) retirement  Continued use of 65 as the marker of old age is inappropriate

21. Retirement age policies US – from 65 to 66 by 2008, to 67 by 2025 Germany – from 65 to 67 by 2029 France – from 60 to 62 by 2018 UK – to 65 for women by 2020; to 66 for all by 2020; to 67 by 2036; to 68 by 2046 Canada –from 65 to 67 for OAS/GIS, 2023 to 2029; no change in CPP/QPP

22. Looking ahead Gains in life expectancy will continue to be important A continuation of recent gains will add 800,000 people aged 65+ in 25 years, as compared to maintaining constant mortality rates That means an extra 8.5 percent age-eligible to receive full pension benefits Should that not be part of pension reform discussions?

23. Policy option: change age of eligibility AE0 – remains at 65 AE1 – increases by one month each year, 2011 to 2035 AE2 – increases by one month each year, 2016 to 2035 AE3 – increases by three months each year, 2011 to 2030 AE4 – increases by three months each year, 2016 to 2035 AE5 – increases adjust to gains in life expectancy at birth

24. Age-eligible portion increases, but --

30. What of LF / A-E Pop’n?

36. Implications for contribution rates As a (reasonably realistic) approximation - C t = b t R t /w t L t = (b/w) t (R/L) t Assume (b/w) t constant Then the contribution rate would vary with (R/L) t

37. -- the contribution rate

43. Concluding comments Population aging is inevitable Policy should be based on that assumption But old needs to be redefined The aging of the baby boom will drive up costs Even so, Canada’s public RIS is sustainable But costs are very sensitive to age of eligibility A gradual increase would Moderate the decline in the LF/Pop ratio Reduce the tax rate needed to support the system