Retirement Policy Issues in Canada (review)

The looming retirement surge of the baby-boomer cohort has provoked a spate of recent books on the challenges facing our pension system. This collection of essays, the product of a 2007 conference at Queen’s University, makes a valuable, albeit narrow, contribution to this debate. The four editors are all members of the Queen’s economics department, and the anthology reflects a perspective on retirement issues as seen through the eyes of economists, government officials, and financial services and pension industry specialists who make up the overwhelming proportion of the 39 authors in this book.

The anthology contains 24 articles arranged into eight sections along with an editors’ introduction that provides a concise synopsis of the core findings and arguments of each paper. Five key issues run through this collection: the impact of rapid population aging on Canada’s pension system; the changing nature of retirement now that it is no longer mandatory; the growing movement away from defined benefit (DB) to defined contribution (DC) pension plans in the private sector; the effectiveness of Canada’s pension system in reducing poverty and providing adequate rates of replacement income for retirees; and the shrinking percentage of private sector workers who belong to registered pension plans of any kind.

How well will Canada’s pension system withstand what the book’s editors describe as a “tidal wave of oncoming retirements” as 8 million boomers exit the workforce over the next 15 years? Unlike much media coverage of population aging, the contributors to this collection do not see the size of the boomer cohort itself as a critical problem for pension solvency. Laurence Kotlikoff observes that Canada’s pension system “is in excellent long-term fiscal shape” (p. 25) compared to other nations. Rick Egelton and Steven James argue that the 1997 reforms to the Canada Pension Plan, which boosted contribution rates, reduced disability benefits, and allowed for the shifting of some investments into higher yielding long-term equity markets, reset the CPP onto a path of continued sustainability for the foreseeable future (p. 404). Analyzing the overall economic effect of population aging, William Scarth predicts a 7 percent drop in average living standards, which is a “serious challenge” but one that “may just be manageable” (p. 273).

What about the changing nature of retirement itself? The median age of retirement since 1997 has reversed a previous 20-year decline, the editors note, rising from 58 years to 61 years. Increasingly, the decision to retire itself is becoming more of a “phased-in” rather than an all-or-nothing event as a result of the end of mandatory retirement, reduced investment returns, more opportunities for part-time work in the service sector, a better educated workforce, and the need of women and recent immigrants to work longer in order to boost retirement income. These trends are rubbing up against traditional pension plan designs, Cliff Helliwell argues, which “still largely presume a binary choice: full-time or no work during the course of a year” (p. 60).

Retirement options, however, vary dramatically depending on social class and occupational location. Marcel Theroux observes that over 84 percent of public sector workers are covered by occupational pension plans, mostly defined benefit ones, compared to less than 14 percent of private sector workers (p. 227). Not surprisingly, the median age of public sector retirements, where options for early exit are wider, is holding steady at 58 years, compared to almost 62 years in the private sector, Robert Clark points out (p. 242). Christine Neill and Tammy Schirle note that older workers displaced from their jobs and facing steep barriers to finding alternative positions are more likely to give up looking for work and simply retire. As for retraining and education schemes, “the vast majority do not consider this a worthwhile investment” (p. 304). Only 4.4 percent of employees are also receiving a pension income, revealing that the extent of “double-dipping” remains...