Economy Lab

Raising the retirement age: Consider it a done deal

Special to The Globe and Mail

(Dennis Guyitt/iStockphoto)

Frances Woolley is a professor of economics at Carleton University, where she teaches public finance. Her recent Economy Lab posts can be found here.



If Stephen Harper was to announce tomorrow that the age at which people will be eligible for Old Age Security was going to increase to 67 in the year 2025, who would protest?

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Not the over 50s: they'll still be able to start claiming at 65 as planned.

Not many of the under 50s, either. Some under-50s won’t protest because they can’t be bothered. It’s not worth fighting to get a few thousand dollars of Old Age Security payments a couple of decades from now.

Other under-50s won’t protest because they believe an increase in the pension age won’t affect them: people who enjoy their jobs, and plan on working until 67 in any event; high income people, who would have to repay any Old Age Security anyway.

An increase in the OAS eligibility age might also be accompanied by an increase in the age at which RRSPs must be converted to RRIFs, or an easing of the RRIF withdrawal rules, bolstering support for a change in the pension age.

As Kevin Milligan has argued, increasing the age at which people are entitled to receive Old Age Security and Guaranteed Income Supplement won't produce huge savings. But it's not the absolute savings that matter, it's the savings relative to the political cost incurred - and for an increase in the pension age, those political costs will be manageable.

That’s why the the U.S. is raising its full retirement age, and the U.K. is raising its state pension age. We will raise our pension age because it saves money, and has little political cost.

Thus the question is not if the pension age will be increased, but when. As the accompanying graph shows, 1959 saw the highest number of births ever recorded in Canada: 461,703 babies. After that, the number of births fell slightly, and then dropped sharply with the advent of the birth control pill. (Immigration reduces the relative impact of, but does not eliminate, the baby boom bulge.)



Canada, number of births: 1946-2011



For an increase in the pension age to achieve substantial cost savings, it will have to be in place when those 1959 babies hit 65 in 2024.

I'm predicting that the pension age will gradually be increased to 67, in 3- or 6-month increments, by 2023. Canada Pension Plan already allows people to claim earlier or later than 65: those provisions may be altered slightly, or left unchanged.

What about reforming our health care system? That can wait until the 1959 babies are about to run up serious health care bills -- sometime around 2033.

An earlier version of this post was published on Worthwhile Canadian Initiative.