The fact that Canadians are living longer will create challenges, but we are not facing a crisis, according to the Institute of Canadian Actuaries.
In the next few months, of the Institute will be releasing final versions of the first-ever Canadian pensioner mortality tables, which confirm that Canadians who are members of pension plans are living longer than previously predicted.
“For example, a woman aged 65 in 2014 was expected to live another 22.1 years. The new table indicates a life expectancy of 24.5 years. For a man aged 65, the number has increased over 2.5 years to 22.5 years,” Jacques Lafrance, president of the Institute, said Friday.
“Think about how living an unanticipated 2.5 more years might impact your retirement saving strategy — or your employer’s pension plan. These changes are significant to Canadians, their employers, and their governments,” he said.
According to Canada’s actuaries, there may be challenges with increased longevity, but we are not facing a crisis. Prior to the federal government moving the eligibility trigger for the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits from age 65 to 67, the cost of the programs was expected to increase from 2.3% of Canada’s gross domestic product in 2010 to a peak of 3.1% in 2030. With the change to be fully implemented in 2029, the cost is expected to peak at 2.9% of gross domestic product in 2023.
However, there are other areas where policymakers should take notice, the Institute says. For example, current legislation forces individuals to start withdrawing from registered retirement vehicles not later than at age 71. Given that Canadians are living longer, and that investment returns have been and are currently at low levels, the government would be well advised to consider raising that age to provide more flexibility, it says.
Lafrance noted the concept of “retirement age” itself may be outdated. Many older Canadians are making a gradual transition to retirement, working part-time or for reduced hours.
“While governments have made some progress in amending pension legislation and government programs to better accommodate phased retirement, a fresh look at these rules in order to make further progress would be a good idea,” Lafrance said.
The Institute is also calling on governments to take a fresh look at early retirement incentives. Many public sector workplace defined benefit pension plans subsidize early retirement. This means that government employees can generally retire earlier than their private sector counterparts, with a full pension or one that is of greater actuarial value. These incentives are costly and their impact is not well understood, the Institute notes. It suggests, they may not make much sense any more.