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Later Retirement: A Win-Win Solution?

April 12, 2012

1-minute read

The C. D. Howe Institute have put out a study on later retirement by Peter Hicks, a former senior official with HRSDC and the OECD who has written a lot on the policy implications of ageing societies. I find this to be one of his less convincing efforts.

The argument - with parenthetical comments - is as follows.

1) Employment rates of older workers, including those over age 65 have been rising rapidly, and this trend can be expected to continue "without any policy action" (p.20). Indeed, employment rates can be expected to rise significantly higher and future retirees can be expected to work at least five years longer on average.  (A convincing case is made that current base case scenarios under-state the degree to which older workers will retire later.)

2) The rise in employment rates has already been keeping pace "more or less" in line with increasing life expectancy. (True, p.3. The implication is that we are already set for an increase in expected proportion of the life course spent in paid work compared to the bottom reached about a decade ago.)

3) While not the whole story, an important part of the reason for later retirement is eroding employer pension coverage, low returns to savings and inadequate retirement savings for future senior age cohorts. (True, pp 8-9.)

4) Later retirement will reduce cost pressures on public pensions and increase the supply of labour, greatly reducing the anticipated costs of population ageing.

Therefore, we should raise the age of eligibility for both the Canada Pension Plan and Old Age Security. (!!!)

The policy conclusion is a complete non sequitur. The problem of costs from ageing is exaggerated. There is a growing retirement income security problem.  Therefore, we should restrict access to public pensions even though they do not mean that people have to stop working, and even though the costs are manageable.

Even the author is unable to come up with a very convincing rationale, beyond saying that reforms are needed to "convey the message that it is no longer appropriate for public policy to include provisions that could distort people's life course decisions in a way that favours people spending shorter periods of their lives in work." (Note the last part of the sentence is contradicted in his own analysis in point 2. above.)

But what is the cost of "conveying a message"? Hicks concedes in passing that not all workers remain healthy well into old age, and that many of us still work in very physically demanding jobs and will not as older workers have skills which employers want. He hints vaguely at future adjustments to public pensions to deal with these problems.

But, he says, we need to wave a stick even when it is not needed.

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