OAS Remedies Should Not Be Just about Cost Containment
In a recent article, Rob Carrick suggested increasing the tax clawback for Old Age Security (OAS) as a way to control costs. This would have the effect of lowering benefits without having to increase the retirement age. However, I think we need to have goals other than just cost containment.
Life expectancy has risen considerably since 65 was chosen as a retirement age. Instead of increasing the retirement age as life expectancy rises, government workers tend to retire in their late 50s, with many retiring at age 55. Many of these workers will be retired as long as they were working. This is not sustainable.
Outside of powerful unions in the public and private sectors, pensions are generally dismal by comparison. Many advocate an improved pension system for all that is as strong as the pensions that government workers enjoy. This will never happen. How could we possibly run a country if nearly half of all adults are retired? Who would mow the lawns on the golf courses?
We need a better pension system for all Canadians, but it must start with a sensible retirement age. I think 70 is about right. If OAS payments didn’t start until 70, then the monthly benefits could be higher than they are right now. If CPP payments didn’t start until age 70, then they could be actuarially increased as well.
We also need a pension system that is portable from job to job. Hopefully, the new Pooled Registered Pension Plans (PRPPs) will become a sensible option with portability; it is unreasonable to expect people to stay with the same employer for their entire working lives.
With a focus on a retirement age of 70, OAS and CPP benefits could be higher, and employer-based pensions with comfortable benefit levels would be much more affordable. Workers would be able to count on comfortable retirement income starting at age 70 without needing other savings.
None of this would preclude people from retiring before age 70. To do so, the goal would be clear; if you can save up 10 years of living expenses by age 60, then you can retire knowing that even if your savings are gone by age 70, you’ll be safe. For those who can’t save anything, at least they will know that they will have a comfortable retirement income at age 70.
There will be cases of people who are unable to work until age 70 for health reasons. It would make sense to allow these people to access their (actuarially-reduced) pensions early. But this should be the exception rather than the rule. The vast majority of people should not start accessing OAS, CPP, or employer-based pensions until age 70.
Life expectancy has risen considerably since 65 was chosen as a retirement age. Instead of increasing the retirement age as life expectancy rises, government workers tend to retire in their late 50s, with many retiring at age 55. Many of these workers will be retired as long as they were working. This is not sustainable.
Outside of powerful unions in the public and private sectors, pensions are generally dismal by comparison. Many advocate an improved pension system for all that is as strong as the pensions that government workers enjoy. This will never happen. How could we possibly run a country if nearly half of all adults are retired? Who would mow the lawns on the golf courses?
We need a better pension system for all Canadians, but it must start with a sensible retirement age. I think 70 is about right. If OAS payments didn’t start until 70, then the monthly benefits could be higher than they are right now. If CPP payments didn’t start until age 70, then they could be actuarially increased as well.
We also need a pension system that is portable from job to job. Hopefully, the new Pooled Registered Pension Plans (PRPPs) will become a sensible option with portability; it is unreasonable to expect people to stay with the same employer for their entire working lives.
With a focus on a retirement age of 70, OAS and CPP benefits could be higher, and employer-based pensions with comfortable benefit levels would be much more affordable. Workers would be able to count on comfortable retirement income starting at age 70 without needing other savings.
None of this would preclude people from retiring before age 70. To do so, the goal would be clear; if you can save up 10 years of living expenses by age 60, then you can retire knowing that even if your savings are gone by age 70, you’ll be safe. For those who can’t save anything, at least they will know that they will have a comfortable retirement income at age 70.
There will be cases of people who are unable to work until age 70 for health reasons. It would make sense to allow these people to access their (actuarially-reduced) pensions early. But this should be the exception rather than the rule. The vast majority of people should not start accessing OAS, CPP, or employer-based pensions until age 70.
I think this a very thoughtless article. Mant pensions are integrated with the CPP system so employer pension plans would be more expensive. Many retired people cut grass, deliver papers or have second careers to fill the labour pool. Linking benefits to income as suggested in the other article is far better, less of an impact on higher income people and more options for lower incomes. I think there is room for a higher retirement age, but one that is chosen based on analysis.
ReplyDelete@Anonymous: I suppose you won't be surprised that I disagree with you. I have put quite a bit of thought into this issue. If all pension systems (including CPP) began paying at age 70, they would be far less expensive, not more expensive. It's a necessity that some retired people continue to work because the price of labour would rise quickly otherwise as the number of retirees begins to shoot up. I'd rather acknowledge this fact and set a sensible age when anyone can retire (with high enough benefits that they don't have to work). Right now, too many people hit 65 without enough CPP and OAS to get by comfortably.
ReplyDeleteI think your suggestion is certainly doable, provided employers become more open-minded about employing older people. So many employers want anyone over 60 out of their offices and off their payrolls - they prefer young, dynamic and cheap employees.
ReplyDeleteI personally plan to retire at 60 and I have saved diligently to achieve that.
@Tara: I think this is a matter of supply and demand. Private sector employers need profits to stay in business and will employ older workers if they are willing to accept pay in line with their value to the company. Our culture of rarely handing out pay cuts is a problem here. Many workers could continue at a slower pace or with lesser responsibilities, but only if they take a pay cut.
ReplyDeleteI applaud your approach to meeting your goal of retiring at age 60. Your are saving rather than moaning about inadequate CPP and OAS. I'd rather delay CPP and OAS to age 70 and increase the payment levels (for those who wait until age 70) so that people like you could choose a retirement age by how many years of savings you have built up.
With the average life expectancy in the low 80s in Canada, working till 70 means you only have (on average) 10-15 years to lay back and relax after working for 40-50 years? Something is wrong with this picture. I'm with you guys; save everything you can and get out in your 50s while you can still ahead of the average.
ReplyDeleteAt my company, they do not allow job sharing or part timers - either you work full time, full steam, maximum capacity, or you leave. There are workers over 60 who are still performing at 100% and in no way deserve a pay cut just because they are older, but in my opinion the company is making a mistake by not allowing people to slow down once they get to a point where they don't need so much money and stress but are still valuable contributors due to their many years of experience.
ReplyDeleteMy point was that they should allow part time and job sharing, BTW, in case that was not clear.
ReplyDelete@Tara: I agree that it makes sense for employers to be flexible by allowing part-time work, etc. This may not be feasible for all jobs, but there is room for creativity here. My employer has no blanket policy about this issue; it is handled on a case-by-case basis. I'd like to think that when I get older I could drop down to 3 days per week at 60% pay without my employer balking.
ReplyDeleteTry doing heavy physical work after 60 (construction, roadwork). I`ve worked in construction all my life and at 60 I had to retire, knees were gone, back in bad shape not to mention employers want to get rid of you before you become a workers compensation case. Leave the ages alone, we have paid into the system big time. Maybe it`s time to cut back on civil servant pensions and retirement benefits they get, also look at the obscene retirement politicians get. U.S. social security pays a lot more than the Canadian CPP and OAS.
ReplyDelete@Anonymous: If you are over 60, then in fact, people your age did not pay enough into CPP and OAS to cover the benefits they will collect. They will be sponging off younger generations. If I got to go back in time and fix this problem, I'd have contruction workers contribute to additional savings to cover their reduced (or eliminated) income in the last decade before their CPP and OAS kick in at age 70.
ReplyDelete