OAS at 67: Too little, too late

In its 2012-13 budget, the Canadian government announced its intention to gradually raise the age of eligibility for the Old Age Security program from 65 to 67. This reform will surely be seen as a timid adjustment measure by future generations.

Since the program was implemented in 1951, additional life expectancy at 65 has increased substantially, going from 13 to 18 years for men and from 15 to 22 years for women, while the age of eligibility for pension benefits was reduced from 70 to 65 in the 1960s. The reform proposed in the most recent budget only partially corrects this anomaly. By 2029, life expectancy will continue to increase. In order to prevent the age of eligibility from becoming a political issue with each new generation, it would be preferable to adopt a more dynamic approach in which it increases automatically as a function of longevity.

Data from the OECD show that countries where the employment rate for older workers is high also enjoy a high employment rate for younger workers, and that where the one rate is low, so is the other. This is at odds with the perception that the old are "taking jobs away" from the young. On the contrary, a society tends to be more dynamic and prosperous when workers who have accumulated experience and developed skills remain active longer. Paying people not to work does not add to our collective wealth!

Longevity can become a burden if it leads systematically to a greater number of retirees, but it has the potential to be a great boon (as it should be) if it adds to the productive capacity of an economy. Instead of increasing fees levied on active workers, we must lighten the load of retirees. A person who remains on the labour market represents a double benefit: one more worker and one less retiree.

We need to strike a balance between years worked and years of retirement. To keep the burden of pension benefits from becoming unbearable, increases in longevity must be accompanied by increases in years worked. Thus, it is essential that we encourage ongoing training so that workers remain productive longer.

Workers with shorter retirements and longer working lives are spared from having to work very hard to accumulate sufficient savings over a short period to support their longer lives and can better accommodate work, leisure and quality time with family. Promoting the contribution of seniors and reducing the waste of their talents will allow for a better quality of life for all, young and less young!

The linear conception of the stages of life must be adapted. There used to be a fairly clear distinction between studies, career and retirement. More and more, however, these stages overlap and retirement is being transformed into old age insurance. Already, 54% of Canadian workers see themselves working after the age of 65, either part-time or full-time. A profound shift must occur in the way people think about retirement.

When the concept of retirement first arose, people worked 30 years and then survived another 10 years or so: a three-to-one ratio. If we rediscovered this balance, we would stop thinking about increasing longevity as a problem and would appreciate it for what it really is: a remarkable gift.

Yves Guérard is an actuary, an associate researcher at the Montreal Economic Institute and a former secretary-general of the International Actuarial Association.

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