Not a pension crisis, but reform opportunity

Posted on February 3, 2012 in Social Security Debates

Source: — Authors: – business
February 2, 2012.    Editorial, Vancouver Sun

We have pension challenges in Canada, but we do not have a crisis.

That distinction needs to be kept front and centre when we talk about both the adequacy of retirement income for Canadians now and the demographic changes that threaten the sustainability of our public pension system.

Stories in the news about the crisis in Europe might have led many Canadians to believe that the same dire conditions exist here. They do not. A comparative study done by the head of the social policy division of the Organization for Economic Co-operation and Development for the federal Department of Finance in 2009 concluded that “Canada does not face major challenges of financial sustainability with its pension schemes.”

To put the issue into perspective, the study projected that spending on public pensions of all kinds will increase from the current level of 4.5 per cent of GDP to 6.2 per cent by 2060. By comparison, the 27 European Union nations already were spending on average nine per cent of GDP at the time of the study.

Prime Minister Stephen Harper ignited a firestorm in Canada with his speech last week at the World Economic Forum in Davos, Switzerland, in which he listed the need for pension reform as one of the priorities of his government.

Tossed into the overheated political atmosphere in Ottawa, those remarks and the confirmation from Conservative House Leader Peter Van Loan have unleashed a torrent of unhelpful rhetoric from both sides of Parliament.

What Canadians need to hear instead is a rational discussion of the challenges facing our pension plans and the options for improving the outlook for the next several decades.

First, we do have demographic challenges. The chief actuary for the federal Old Age Security system estimates that as our population continues to get greyer over the next 40 years, the ratio of people of working age to retirees will fall from 4.4 to one to 2.2 to one.

All of the components of our Old Age Security system, which includes the OAS, the Guaranteed Income Supplement and survivors’ allowances, are supported by taxpayers. With fewer taxpayers of working age, the burden on those remaining will increase, not-withstanding that many retirees also pay taxes.

Without any changes to current formulas, the cost of Old Age Security is expected to increase from the current level of 2.3 per cent of GDP to 3.1 per cent in 2030.

All of which raises a number of crucial questions that we need to address in a national debate, rather than one that gets too easily hijacked for partisan advantage as we have seen already this week in Ottawa.

First is the question of sustainability. We can see that costs will rise over the next couple of decades. Do we need to cut those costs or should we look else-where to raise the funds necessary? In any organization, spending patterns have to change to meet changing priorities. In times of war, we spend more on defence. During the baby boom, we invested disproportionately in education. Do we need to simply accept the fact that as our population ages, we will have to spend more of our bud-get on pensions, leaving less for other priorities?

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