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.
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