Why Are Canadians Whining Over Pensions?

Bill Curry of the Globe and Mail reports, Ottawa looks abroad for OAS pension solutions:

The Conservative government is looking abroad to find the best way to phase in a higher qualifying age for Old Age Security.

Human Resources Minister Diane Finley argued Sunday that Canada is one of the only countries in the 34-member Organization for Economic Co-operation and Development that isn’t already raising their retirement age.

Ms. Finley was asked directly on CTV’s Question Period whether the government’s plans would see Canadians having to wait until age 67 – rather than the current 65 – in order to qualify for Old Age Security.

“That’s one option. But let’s look at it. It used to be people were expected to have a life expectancy [of] between 68 and 71. Now it’s 81, and they’re still expecting to retire at the same age,” Ms. Finley said. “Almost all of the other countries in the OECD have already moved in this direction. The U.S. started doing this a little close to 20 years ago.”

Ms. Finley, 54, continued the government’s practice of offering hints at the government’s pension reform plans without specifically spelling out when the change would take effect or what it will involve.

“What I’m saying is that in terms of implementing it, we’re not going to tell people that they have to adapt within two years to a dramatically different model. … We’re going to make sure that people my age and younger have time to adjust their retirement plans,” she said.

Alice Wong, the Minister of State for Seniors, told the House of Commons last week that more information on the changes will be in the 2012 budget. The date of the budget has not been announced.

The federal government paid for a research report that summarized what other countries are doing in terms of raising the eligibility age of retirement programs. The October, 2010, report described Canada as an outlier.

“Canada stands out among the OECD countries in not having in place explicit plans to increase the age of eligibility for public pension plan benefits,” states the report, titled Age of Pension Eligibility, Gains in Life Expectancy, and Social Policy, prepared by researchers at McMaster University.

The report includes examples of what other countries are doing:

The U.S. passed legislation in 1983, gradually raising the eligibility age for social benefits by two months each year for five years. The age reached 66 in 2008 and will hit 67 in 2025.

Germany will increase its normal pension age from 65 to 67 between 2012 and 2029

The United Kingdom will raise the age for full pension benefits for women from 60 to 65 by 2020, and the age for both men and women will increase from 65 to 68 over a 22 year period starting in 2024.

Denmark, Finland, Portugal and Sweden have all linked benefits to gains in life expectancy.

The report concludes by recommending that Canada also bring in gradual and modest increases to the eligibility age, predicting it would moderate the inevitable decline in the size of the labour force relative to the size of the retired population. The authors say it would also make it possible to reduce the amount of taxes levied by the government to fund the public retirement income system.

The report’s recommendations are in contrast to another report to Ottawa that found “there is no pressing financial or fiscal need to increase pension ages in the foreseeable future.” That report, by OECD pension expert Edward Whitehouse, noted that a higher pension age could however be used to augment the value of benefits.

If Canada is also planning changes that won’t take effect for years, that may ease some of the heat the government is currently feeling over the issue. However a longer timeline also means the issue could play out during the next federal election campaign, which is expected in 2015.

The opposition NDP and Liberals have been highly critical of the Conservative plans to change OAS since they were first hinted at by Prime Minister Stephen Harper in Davos, Switzerland, during a Jan. 26 speech to the World Economic Forum.

One heavyweight that stepped into this debate is the Bank of Canada's former governor, David Dodge, who hopes Harper steps up on pension reform:

When it comes to pension reform, David Dodge has seen this movie before – twice – but he hopes it ends differently this time.

Prime Minister Stephen Harper has refused to answer repeated questions in the House as to whether he is planning to raise the eligibility age for Old Age Security to 67 from 65, leading opposition parties to howl that he is refusing to come clean.

However, Mr. Dodge – the former governor of the Bank of Canada who was deputy minister at the Finance Department during the deficit-slashing mid-1990s – hopes the government does just that. Moreover, in an interview Friday, Mr. Dodge suggested Mr. Harper should take advantage of his majority government and even raise the age for the Canada Pension Plan, something other governments have shied away from, and which the current Conservatives say is not on the table and not necessary.

“At least since the mid-1980s we’ve known we were going to have to do something,” he said. “We knew that back in ‘97 when we did the revisions of the CPP. At the time the decision was we were doing so much to fix that adding one more layer – i.e. the gradual increasing of the age – was probably too much to bear. So, we didn’t do it, although we certainly talked about it, and the finance minister and officials at the time talked about it and realized we really should do it. But we didn’t because we were doing so much else.”

“So, quite frankly,” he continued, “we’re at least 15 years late in getting started in raising that age of entitlement for CPP, OAS and the normal expectation as to how long people would work in the private sector with private-sector pension plans. That’s absolutely clear, and because labour participation rates will start to fall later this decade, we’re up against the wall. It would have been a lot better if we’d done things in 97, it would have been even better if we had done things in 85 when we first looked at this under the Mulroney government, because you need a long phase-in.”

Leaving the CPP aside, the cost of the OAS program is poised to soar as the baby boom generation retires, which is starting now. Other governments saw this coming, but ultimately backed down from plans to tackle the problem. In particular, when Tory Prime Minister Brian Mulroney partially de-indexed the program from inflation in his 1985 budget, he was famously accosted by then-63-year-old protestor Solange Denis, who fumed “You lied to us.” A week later, Mr. Mulroney reversed the decision, which he called “a mistake.”

Twelve years later, then-Liberal Finance Minister Paul Martin won over Ms. Denis – even to the point of dancing together for the cameras – for his proposed revamp of the OAS in 1996. Mr. Martin planned to replace the OAS and the Guaranteed Income Supplement for low-income seniors with a Seniors Benefit based on family, rather than individual, income. The fury came from others however, and Mr. Martin also backtracked.

Mr. Dodge is warning the Harper government against wasting another opportunity to start the clock on addressing a fiscal problem that everyone has known about for decades.

“There’s nothing, absolutely nothing new here, other than the fact the prime minister spouted off when he was standing among the great and the good over in Davos,” Mr. Dodge said, referring to Mr. Harper’s speech at the World Economic Forum in Switzerland last week, when he indicated he intends to tackle some of these issues.

“This has been in the literature, it’s been well understood for a long period of time. This one is in my mind (a) overdue, and (b) there’s a lot of noise that is pretty stupid, quite frankly – and maybe even politically stupid – coming out and saying, you know, ‘We can’t ever contemplate raising that age.’ All you have to do is remind people that originally it was age 70, and that was when people had a lot shorter life expectancy than they have today.”

Of course, for elected officials there is a big difference between recognizing the gravity of a problem and having the political will to take the actions that top bureaucrats recommend. Mr. Dodge has the battle scars to prove it, having served as Mr. Martin’s deputy. So, does he think the Harper government will break the mould?

“Generally, things that are not necessarily popular are done under majority governments,” Mr. Dodge said. “So I would hope they get on with it and do it.”

And what of the inevitable criticism from opposition parties, which could stalk the government all the way into the next election campaign?

“I would just hope that not everybody on the opposition side of the House is crazy,” he said. “There’s lots of people there that understand full well that there’s a big problem here.”

David Dodge is right, time to get on with pension reform. But it's more pressing than just raising the retirement age. We need a 'radical rethink' of our pension system which I already alluded to when I went over Prime Minister Harper's speech at Davos:

  • Increase the retirement age to 67 (people are living longer; some economists think we need to raise the retirement age to 70)
  • Review cost-of-living adjustments (COLAs) and cut when necessary
  • Scrap all private companies' defined-benefit plans and consolidate them into a few large public defined-benefit (DB) pension funds. Companies should focus on producing goods and services, not managing pensions.
  • Consolidate all municipal and city pension plans into large public DB plans
  • Consolidate all Crown corporations DB plans into one large DB plan
  • Expand CPP to all Canadians and get the funding right
  • Cap CPPIB and all large public DB plans at a certain size and create new ones as needs arise
  • Make pensions portable so no matter where people work, their pensions are safe, secure, well managed and will follow them
  • Last but not least, get the governance right and improve it continuously.

Canadians whining over an increase in retirement age are wrong but so are others who think that this is the only adjustment needed to bolster pensions.

Let me be more blunt: we need to get our collective heads out of our asses, stop fear mongering, stop peddling to interests groups, and start getting on with some serious pension reform which introduces common sense measures and builds on the success of our large defined benefit plans.

I'm tired of watching interests groups from all sides of the political spectrum cry, scream, bitch and whine about pension reform. Wake up already, look what's going on in Europe, especially in Greece where partisan politics has destroyed the country. Having escaped the carnage that has rocked other nations, we've been lucky in Canada, but our good fortune could change at any time and we better be prepared.

Finally, don't be scared of working past 65. Work is good for you, it's healthy. It keeps your mind young and sharp. I see my 80 year old father working 10 hour days as a psychiatrist and he never complains. Admittedly, he's lucky, he's healthy, loves his job, his colleagues, and feels good helping mentally ill patients. Wish more Canadians had his attitude when it comes to work. Below, Canadian politicians doing what they do best, screaming at each other. Absolutely pathetic.