Blue-Collar Workers Bear Aging Burden

By Craig McInnes, Vancouver Sun

April 2, 2012

Canada

 

Finance Minister Jim Flaherty got one thing right last week when he announced that 67 will be the new 65 when it comes to collecting Old Age Security in Canada: Canadians are getting older.

That poses a problem for a pension system that is funded entirely by current taxpayers rather than through savings. But his solution reeks of blinkered self-interest and his justification for cutting benefits to the bottom half of the income ladder in Canada falls several rungs short of persuasive.

The OAS and the Guaranteed Income Supplement, which is available to people with virtually no other income, are together the part of our retirement system that supports people who haven't saved enough to support themselves. Unlike fully funded workplace pensions and the partly funded Canada Pension Plan, it's the piece that we depend entirely on the next generation of workers to pay for.

Our aging population means the ratio of retirees to younger people still working will put a larger burden on fewer people in the future. The chief actuary for Canada's old age security system reported last June that in 2010 there were 4.4 people aged 20-64 for each person over 65. By 2050, that ratio is expected to fall to 2.2.

Flaherty also rightly points out that because we're living longer, retirees who depend on OAS/GIS will be a burden for future workers for longer than they used to be.

Flaherty says the current system isn't sustainable.

According to the chief actuary, before the change, the portion of the economy used to support the OAS program would have grown from 2.3 per cent in 2010 to 3.1 per cent in 2030 before decreasing again.

If you want to make that sound scary, you call it a 35-per-cent increase. But it is still less than one per cent of GDP, nothing like the challenge we face on the health care front.

Manageable or not, it's not really fair to pass that cost on to our kids.

Flaherty's solution, announced with the budget last week, is starting in 2023 Canadians who are 54 and younger will have to wait two more years before becoming eligible to collect OAS and GIS. That doesn't mean the age of retirement has been increased. What matters is whether you can afford to retire, whether at 55 or 67.

The problem with the Flaherty solution - which has been brought in with no public discussion of any alternatives - is that it solves that problem on the backs of the people who are most likely to be in jobs that they will be happy to retire from.

These are people who work in blue collar service and labouring jobs, who don't have workplace pensions and haven't been able to save much on their own. They won't be able to retire until they qualify for a government pension. If current trends continue, by the time this change kicks in, even fewer workers will have private pensions and a greater percentage of Canadians will be relying entirely on what they can get from the national government.

It's worth noting the Conservative government's refusal to consider enhancing the Canada Pension Plan, which would require the current generation of workers to save more for their own retirement, is making this problem worse.

Since most people either can't or aren't willing to take full advantage of voluntary savings programs, RRSPs, tax-free savings accounts and the yet to be implemented Pooled Registered Pension Plans, their failure to save becomes a burden for people still working or paying taxes after they retire.

Even without reducing the size of the burden being shoved forward, the government could still make the OAS/GIS system less onerous for future workers without forcing people in menial jobs to work longer. It could make the system less generous to retirees who don't really need the government's help to afford a comfortable retirement.

The income level at which the OAS starts getting taxed back could be moved down from the almost $70,000 where it starts now to closer to the average wage for people still working, which in 2011 was just under $50,000 a year.

While fairer to my eye, that solution may have been rejected by the Conservatives because it would hit their political base, which skews towards the upper end of the income ladder. Since the government has never entertained any discussion on this issue, that's hard to know for certain.