Insights from the OECD’s Pensions at a Glance 2017

On December 5th, the OECD published its biennial flagship publication Pensions at a Glance. The 2017 edition again provides a trove of interesting data; here are a few highlights from this year’s survey (all figures below are from OECD Pensions at a Glance 2017). [Read more…]

Fraser Institute Makes a Rickety Case for Boosting the Pension Eligibility Age

The Fraser Institute has a recent report looking at the rising eligibility age for public retirement programs in the OECD.

The report contrasts Canada’s decision in 2016 to cancel scheduled increases in the eligibility age for OAS, GIS and the Allowance on the one hand, with the general trend toward a rising age of eligibility in many OECD countries on the other.

At times, the Institute’s primary argument seems to be “everyone else is doing it, therefore we should be as well” – an unconvincing argument for an important policy change.

At other times, the report tries to suggest that Canada should follow other countries and increase eligibility ages to counteract the rising public expense of ageing populations.

But this argument confronts a series of problems:

1. The fiscal case for increasing OAS program eligibility ages was always weak. The cost of the 2016 decision to cancel the scheduled increase in the age of eligibility for OAS/GIS represents 0.3% of GDP in 2030, hardly an unmanageable expense, and the enhancement of the CPP/QPP will further reduce GIS expenditures.

Governments in Canada could take several steps today in order to compensate for this future cost increase and prepare for an ageing society, including implementing a single-payer drug insurance program in Canada. By lowering Canadian drug costs to the OECD average, this innovation is expected to produce net savings of approximately $11 billion, equivalent to the $10.4 billion in additional OAS program outlay resulting from the changes.

2. In comparative terms, Canada spends relatively little on public pensions. Whether measured as a share of GDP or as a percentage of total government spending, public expenditure on old-age benefits in Canada falls well below the OECD average.

 

Source: OECD Pensions at a Glance 2017, table 7.3

 

Source: OECD Pensions at a Glance 2017, table 7.3

Nor has Canada experienced particularly rapid growth in government spending on public pension benefits. Over the period between 2000 and 2013, public expenditures on old-age and survivors benefits as a share of GDP grew roughly 9%, placing Canada in the bottom half of OECD states.

Source: OECD Pensions at a Glance 2017, table 7.3

3. Increasing pension eligibility ages worsens inequality in old age, with its own fiscal consequences. As the OECD’s “Preventing Ageing Unequally” study recently summarized:

Shorter lives of low-educated, poorer pensioners reduce their cumulated benefits proportionally more, regardless of the pension system. When the average three-year gap in life expectancy between low- and high-educated people at age 65 is considered, the pension wealth (the discounted stream of pension payments over retirement) of low-income individuals, relative to that of high-income retirees, falls further by about 12%, on average across countries. As a consequence, raising the retirement age will affect low-income workers proportionally more than higher-income workers [page 41].

In the OECD’s opinion, these additional losses from increases in the retirement age are relatively small, however. Focusing just on differences in life expectancy, if retirement ages were effectively increased by three years between 2015 and 2060 – and assuming life expectancy at 65 years increases by 4.2 years on average over this period – the relative pension wealth of the low-income versus high-income groups would be reduced by 2.2% on average across countries.

However, the gap in life expectancy may very well grow even as average life expectancy increases, and as the OECD concedes, the calculation above assumes that people will work until the new, higher normal retirement age. But increases in the statutory retirement age will likely raise the effective retirement age less for low-educated than high-educated workers, given the socio-economic differences in health status and employment rates. The negative impact of higher retirement ages on the accumulated pension wealth of low-income individuals is therefore likely to be greater.

As was noted in early 2012, when Harper announced the retirement age increases, delaying access for low-income seniors to public pensions could be expected to increase social assistance expenditures and the cost of other supports for low-income individuals.

4. Canada’s employment rates among those between age 55 and 69 are already above the OECD average (and rising), so it’s unclear why higher retirement ages are needed to compel people to work longer.

Two last points worth noting: pension policy has fluctuated in recent years, and not only in Canada (Poland has just reduced their eligibility age, and in 2014 Germany allowed long-service workers to retire with a full pension at age 63). Of the six OECD countries that changed their retirement age between 2015 and 2017, three reduced the long-term planned retirement age. It’s possible that retirement ages could continue to fluctuate in the future.

And in many cases, OECD countries planning increases in the eligibility age are starting from retirement ages below age 65. The retirement age is projected to increase from 64.0 on average in the OECD in 2014 to 65.5 by 2060, based on current legislation, and men entering the labour market at age 20 will still be able to retire before 65 in Slovenia, Luxembourg, Greece and France. Most of this nuance was (predictably) lost in the Fraser report, unfortunately.

 

Pre-Funded Pensions and Social Solidarity

When finance ministers agreed to expand the Canada Pension Plan in June 2016, they didn’t give Canadians a simple expansion of the Canada Pension Plan. In important respects, they created a new and different social security benefit. And that’s the way governments view it.

[Read more…]

Vulnerable workers in the shadow economy: is there an app for that?

Non-standard or contingent forms of work are a growing feature of OECD economies. Katz and Krueger (2016), for instance, find that non-standard work arrangements (temporary help agency workers, on-call workers, contract company workers, and independent contractors or freelancers) accounted for all net employment growth in the U.S. economy between 2005 and 2015. Across the OECD, non-standard work now makes up a third of total employment.

[Read more…]

How progressive is a basic income? left and labour perspectives

There’s been an enormous amount of recent interest in an old policy idea: a basic income guarantee (BIG), also known as a guaranteed annual income (GAI), guaranteed minimum income (GMI), citizens income, negative income tax (NIT), etc.

The discussion below focuses on these proposals from a progressive labour perspective. It reviews positions Canadian unions have taken in the past, highlights concerns that have been raised and considers the conditions under which these proposals should be supported in relation to progressive labour priorities.

[Read more…]

Canada still in the dark on the gender pay gap

According to the IMF, inequality between men and women is an important facet of income inequality, in both high-income and low-income countries. As in other part of the world, women in Canada persistently receive lower wages and annual earnings than men. Despite evidence of slow progress toward pay equity, Canada’s gender wage gap remains larger than the OECD average, and slightly wider than the gap in the US; women’s full-time median wages are just over 80% of those of men.

In a country like Canada, ending the chronic gender earnings gap calls for a comprehensive set of interconnected and reinforcing measures, including breaking down employment barriers, providing high-quality affordable childcare, expanding and enforcing pay equity laws, and broadening access to collective bargaining. But one simple first step governments can take is requiring employers to publicly disclose the gender pay gap. [Read more…]

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