Over the past few years, mandatory retirement at age 65 has all but disappeared in Canada, as province after province has banned the practice of forcing people to leave the workplace based solely upon their age.

Governments have embraced the abolition of mandatory retirement, in large part because of the fear of what could occur if they didn’t: widespread labour shortages caused by retiring boomers, and the strain on public finances that would result as those boomers draw on government pensions and other public supports.

So, governments are making it easier for your boomer clients to stay in the workforce and still build retirement savings. In 2007, Ottawa made changes that allow individuals to contribute to their RRSPs until the end of the year in which they turn 71, up from age 69. The federal government and only Alberta and Quebec among the provincial governments are also encouraging older workers to stay in the workforce by making phased retirement easier for employees under their jurisdiction. Those employers may now pay a partial pension to an employee and, at the same time, provide further pension benefit accruals.

“For pension plans, it was always possible to work past age 65,” notes Thomas Klassen, an editor of Time’s Up: Mandatory retirement in Canada and associate professor of political science at York University in Toronto. “So, there wasn’t any need to change any pension regulation. [What changed, is] the federal government allowed people to be employed and also receive pension payments from an employer pension plan.”

Malcolm Hamilton, an actuary and worldwide partner in Toronto with New York-based retirement and pension consulting firm Mercer LLC, concurs. In most cases, he says, company pension plans are flexible.

In fact, employees working past age 65 and continuing to contribute to a defined-benefit plan is probably a net benefit to the employer. “Having the bigger pension at a later date probably costs the plan less money than having the smaller pension at the earlier date,” Hamilton says. “For the most part, it is a positive thing for the pension plan to have people delaying their retirement after the normal age.”

In the case of a defined-contribution plan, he adds, it doesn’t make any difference.

So, most employer pension plans can easily adapt to the new 65-plus reality and more plans may be exploring the wrinkles that come in the Age of the Unretired.

“It may be, with the markets having done so badly, that we will see more people staying on,” Hamilton says, “not because they want to but because they have to. But it still won’t be a problem for the pension plans.”

Adrian Mastracci, a fee-based portfolio manager with KCM Wealth Management Inc. in Vancouver, says those people working past 65 often have the luxury of putting off taking Canada/Quebec Pension Plan benefits until age 71, which can “crank up” eventual payouts by half a percentage point for every month of delay, up to 30% in total.

He has found that clients working past 65 are often able to leave their RRSPs untouched. “They might choose to start dipping into the personal account, as opposed to the RRSP,” Mastracci says. “Or, they might choose to grow everything.”

He hopes that Ottawa will next look at loosening up its treatment of RRIFs. (See “Mandatory withdrawals unavoidable,” page B12.) Mandated RRIF withdrawals start off at 7.4% at age 72 and keep rising. “That is a sort of rate that you can’t normally stand for too long,” he says.

Mastracci is looking forward to the introduction of the tax-free savings account as a place to channel money from RRSPs before they are turned into RRIFs when a person turns 71. (See “TFSAs a versatile planning tool,” page B8.)

Still, based upon the experience in the U.S., where there is no mandatory retirement age, it is unlikely that offices across the country will soon come to resemble retirement residences. New York-based consulting firm McKinsey & Co. found in a 2006 survey of 3,000 American pre-retirees that while they, on average, said they expected to work until age 67, the average age of retirees was only 59. Ability — or, more precisely, inability — may trump desire: 40% of retirees left the workplace earlier than they had planned because of health problems or job loss, the survey found.

@page_break@Experts expect that the ranks of workers 65 or older will be similarly modest here in Canada. Statistics Canada reports one-half of workers are retired by age 61.

“So far, we have seen very little of [people working past 65],” Hamilton says, “in part, because employers haven’t been terribly enthusiastic about most people staying after 65, and a lack of enthusiasm on the part of the employees has been equally evident.”

The ground rules surrounding termination of those over 65 are not much different from those for younger workers. Ontario’s Ministry of Labour, for example, states that while an employer can no longer dismiss a worker because the person has reached a certain age, it can still dismiss an older worker “for cause or as a result of a business reorganization.”

While the recent market downturn’s effect on RRSPs may prompt many to delay retirement, actions by employers in an economic slowdown may play a larger role.

A 2007 study of young pensioners by StatsCan found that early retirement take-up rates soared to a peak of 2.2% in 1995 from 1.5% in 1990. Private-sector downsizing “led many large organizations to offer early-retirement incentives in the form of lump-sum payments or reduced early-retirement penalties,” the study noted.

The study focused on those who began receiving private pension income before their 60th birthdays — those not yet eligible for old-age security and CPP/QPP benefits, which do not kick in until ages 60 and 65, respectively.

These 50-something retirees represent the greatest potential loss of labour supply to the economy, the StatsCan study says. But as these people are generally not yet eligible for public pensions and can expect a relatively long lifespan, they are also more likely than older retirees to seek re-employment. The study found, perhaps not surprisingly, that the richer the early retirement package, the less likely people were to return to the workforce.

In addition to corporate restructuring, StatsCan found other situations in which early retirement rates surge. They include public-sector pension plans for programs known as “55 and out” after 30 years of service. That option results in a retirement spike at age 55 of approximately 4.5%: the retirement rate then dips for workers aged 56 to 59, before swinging upward again and surpassing the 55 peak at age 60.

In the end, though, it should be remembered that Ottawa and the provinces were looking out for their best interests when mandatory retirement was put out to pasture and that any benefit for workers was a secondary consideration.

“With anything that sees
Cana-dians working harder and earning more, the government is a major beneficiary,” says Hamilton. “Ending mandatory retirement is good for the government and that is why they promote it shamelessly.” IE