Canadian actuaries recommend increasing retirement age
The Canadian Institute of Actuaries (CIA) issued a public statement on April 18, 2019 recommending that the federal government, with the consent of provincial governments, increase the target retirement ages under the Canada and Quebec Pension Plans (CPP and QPP) and Old Age Security (OAS) to 67 from the current 65. According to the CIA, its public statement is intended to engage all Canadians in a discussion of changing societal needs and the best retirement program designs to support those needs.
The CIA makes clear that current retirement programs are sustainable for the next 40 to 75 years, but states that altering the timing of when benefits are collected should increase the financial security of Canadians in later retirement without affecting the stability of these programs.
According to the CIA, many Canadians do not need to draw retirement benefits as early as is currently permitted. It encourages Canadians to consider starting their pension income later and to recognize that these programs are an excellent method for ensuring income security in later retirement.
These proposals are prompted by both the recognition that people are living much longer than when these programs were first introduced and the anticipation of worker shortages in the Canadian economy as the baby boom generation continues to retire. Since 1966, life expectancy at age 65 has increased by about 6 years, or approximately 33% for women and 46% for men.
As stated above, the target retirement age under public pension plans such as CPP, QPP and OAS would increase from 65 to 67. The changes would be phased-in in 3 month increases each year over a 10 year period starting January 1, 2021. However, the changes are not intended to result in a reduction in benefits. Canadians would receive the same amounts at age 67 that they currently receive, but this would become the standard target retirement age.
In addition, the earliest age for benefits under the CPP and QPP would increase from 60 to 62. The latest retirement age would increase from 70 to 75 under the CPP, QPP and OAS.
The CIA recommends allowing employer-sponsored Registered Pension Plans (RPPs) to raise their normal retirement age from 65 to 67 for future benefits, with an adjustment for pensions already earned under the age 65 normal retirement age. It recommends raising the latest retirement age in an RPP or a Registered Retirement Savings Plan (RRSP) to 75 from the current latest retirement age of 71.
The CIA also states that the retirement age for these programs should continue to be reviewed every 5 to 10 years, with adjustments based on changes in life expectancy and needs of Canadians.
Dealing with concerns for low income groups
The CIA acknowledges that a later retirement age is a concern for low income seniors and they urge governments to consider other means for addressing the needs of these seniors, rather than through the pension system.
The CIA suggests that more targeted approaches to supporting low income seniors could include:
- enhancing income programs like Ontario’s GAINS (Ontario’s income supplement for low-income seniors),
- providing additional drug coverage for seniors,
- decoupling eligibility for the Guaranteed Income Supplement (GIS) from OAS eligibility, and
- increasing the $3,500 exemption on CPP/QPP contributions.
The CIA proposals, which have been reported in the media, will be of interest to policy makers, although most Canadians will not necessarily want to retire later. The previous federal government had implemented an increase in the OAS eligibility age to 67, but that change was undone after the most recent federal election.
Unlike previous proposals for raising retirement ages, with their effective decreases to benefits, the CIA proposal maintains the same higher benefits at later ages in an attempt to encourage Canadians to retire later. Such proposals are intended to benefit both the individual and society as a whole. It remains to be seen as to whether the Canadian government is willing to take up some or any of these proposals.