Later retirement could ease fiscal pressures from aging boomers, says report

It’s no secret: the Canadian population is getting older. That’s had a myriad of implications on financial planning, from the increased importance of longevity risk to the tightening focus on senior investor protection. It also presents a challenge to provincial governments.

A new report from the CD Howe Institute, The Fiscal Implications of Canadians' Working Longer, says that the maturing boomer population will stretch the need to fund age-sensitive programs, primarily publicly funded healthcare. At the same time, the working-age population is slowly declining, causing a steady erosion of the tax base for Canadian governments.

Because of these two forces, the price tag for demographically sensitive programs — which include healthcare, seniors’ benefits, education, and child benefits — will get inflated from 15.5% of GDP today to 24.2% by 2066. The present value of the unfunded liability for age-related social spending, according to the institute, amounts to $4.5 trillion.

According to the report’s authors, letting Canadians stay in the workforce longer can dull the expected impact of the aging population. To encourage more elderly people to remain employed, they proposed several policy changes:

• That the federal government restore the previously scheduled increase in the normal age of Old Age Security (OAS) eligibility to age 67, while providing an option where people can get the benefit earlier but at a reduced amount;
• That actuarial adjustments to benefits payable under OAS and the Canada Pension Plan be kept updated to appropriately reward those who remain in the workforce past the age when they could first start receiving the benefits; and
• Changing a variety of other age-related rules, such as those governing restrictions on retirement saving after a given age or requirements to start drawing retirement income.

The authors noted that lengthened work-life by itself will not provide enough of a tax-base expansion to eliminate the problem. It should be used in concert with other avenues that can mitigate the fiscal pressures that will likely result from demographic change.


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