Statistics Canada has some good news to report:

Canadians are now living longer according to Statistics Canada. For those born within the last two years, life expectancy has increased by more than two years, as compared to 10 years ago. The agency says much of the gains in Canadian life expectancy come from men, even though women still live the longest. Men’s life expectancy at birth rose by 2.9 years to 78.3 in 2005-2007. Among women it increased by 1.8 years to 83.0.

Life expectancy among seniors is also on an upward trend, as it has been for several years. The average man who has already made it to the age of 65 could expect to live an additional 18.1 years in 2005-2007. That’s an increase of two years from the previous decade. A 65-year-old woman can expect to live an additional 21.3 years, up by 1.3 years.

It may be good news, but it may create real problems for the total budget. The office of Parliamentary Budget Officer Kevin Page reports that the Aging population will soon strain federal finances.

The government faces a renewed battle with the provinces over health-care cash as Canada’s greying population puts an increasing strain on federal finances in the coming decades. … It is a battle that will also be fought along generational lines, as public services for Canadian seniors account for a growing proportion of federal spending, leaving working Canadians to pick up the tab even as their living standards shrink.

In the future, population aging will move an increasing share of the population out of their prime working-age years and into their retirement years. An older population puts increased spending pressures in areas such as health care and elderly benefits. In parallel, slower labour force growth will restrain growth in the economy and in the general tax base from which the government collects its revenue.

If health-care transfers are allowed to increase at the current rate, the federal government would have to raise taxes or cut spending by nearly $30 billion in the next budget to keep Canada’s debt in check.

Another factor is that the national fertility rate has fallen from a peak of 3.9 children per woman at the tail of the “baby boom,” to 1.5 children per woman now. Coupled with the longer life expectancy by 2019, individuals over the age of 65 are expected to account for more than a quarter of the population; and by 2029, more than a third.

This puts incredible pressure on the Federal parties as they consider the next federal budget.

The Conservatives are promising to “stay the course,” and will keep cutting corporate taxes. This will lead Canada into even deeper deficits. The NDP would prefer that Canada’s seniors are helped out of poverty with improvements to the Guaranteed Income Supplement (GIS). This is unlikely to get support from the major political parties. Since Liberal and Conservative governments started cutting corporate taxes 10 years ago, individuals are carrying 61 percent of the cost of government programs, while corporations now pay only 15 percent.

Post from: Senior Money Memos

More Older Canadians Will Strain Federal Finances

Technorati Tags: Canada, health care, Life expectancy, Population ageing, Statistics Canada

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Even seniors who have done careful planning may be finding that their retirement plans are under severe pressure. Seniors are living longer yet savings may have been eroded by the severe depression. It was not surprising therefore to see that governments are reacting to these seniors’ concerns.

In December there was talk that Ontario was ready to consider a mega-pension plan.

Ontario is prepared to discuss every option to increase retirement income and broaden pension coverage, says Finance Minister Dwight Duncan – including an expansion of the Canada Pension Plan. He was meeting with fellow finance ministers to review research by Alberta economist Jack Mintz that was commissioned by Ottawa, as well as research done for Ontario by Bob Baldwin, a former researcher for the Canadian Labour Congress. Discussion of their reports will set the stage for further study and public consultations leading up to Council of the Federation meetings with premiers in the summer of 2010.

Fellow finance ministers from British Columbia and Alberta have been openly pressing for a national pension arrangement either linked to, or running parallel to, the Canada Pension Plan (CPP). However proposals for some form of mega-pension plan have raised the hackles of bankers and insurers.

Now Terence Corcoran is suggesting that the Canadian Association of Retired People (CARP) is over-reacting.

The implication is that the vast majority of Canadians are heading into retirement nightmares and need to be bailed out by another government income redistribution system — an implication that is not borne out by a half dozen studies recently commissioned by Ottawa. In a recent report on the studies assembled by Jack Mintz of the School of Public Policy at the University of Calgary on behalf of Finance Canada, the Canadian pension system looked far from being a nightmare. The studies found Canada’s pension system to rank well above the OECD average in terms of providing income security and replacement for the vast majority of Canadians. There are certainly gaps, although exactly where those gaps are remains an unresolved issue.

Susan Eng, Vice-President, Advocacy, at CARP disagreed with the tenor of Terence Corcoran’s article:

Mr. Corcoran argues that there is no need to fix Canada’s pension system. Leaving aside his opinion about the messengers who call for change – including one of Canada’s premier business schools with whom CARP is proud to keep company – the essence of his argument is that the experts engaged by the federal government think that Canada’s pension system does well enough for most.

But what would he propose for the rest? Even his Mintz report identified a significant number of people who are not saving enough. Anyone retiring without savings or a workplace pension is expected to live on $16,000 to $19,000 consisting of OAS and CPP/QPP topped up by GIS. That is fact, not rhetoric.

For those seniors, that is a very bleak and possibly a very long retirement future.

Post from: Senior Money Memos

Most Seniors Need Better Pensions

Technorati Tags: Add new tag, Canada Pension Plan, Old Age Security, retirement

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Jack Layton, the leader of the NDP in Canada says that the Country faces a ‘national pension crisis’.

As you can find with a search on Google Insights, this same concern is expressed elsewhere around the world as shown by the following chart for searches on ‘pension crisis’:

Concern about pensions in the UK is several times that here in Canada and in the US pension concerns almost match those in Canada.

In a nutshell, the problem stems from people living longer while the global recession has severely damaged what people and pension funds had put aside for their retirement.

As Jack Layton said:

Fewer than 40% of Canadians have workplace pensions and those who rely on their registered retirement saving plans have seen “billions of those savings vaporize”. He urged the government to inject $700 million into the guaranteed income supplement to help 226,000 seniors living below the poverty line.

It seems quite clear that what was a Simmering pension crisis is now coming to a boil.

Monica Townson has written a succinct analysis of what is wrong and what can be done.  Her nine-page paper, commissioned by the Tommy Douglas Research Institute, contain two clear messages.

• The first is that there is no “magic bullet that will fix everything.” It will take a mix of reforms – some fast-acting, some long-term – to shore up the pension system.
• The second is that Canada has to get moving now.

Townson’s paper is available on the Canada Centre For Policy Alternatives website.

She highlights the weakness in each layer of Canada’s three-tiered retirement income system:

• Old Age Security was designed to keep seniors above the poverty line. One out of every seven unattached older women lives in poverty. It would take an increase in the across-the-board senior allowance or the low-income supplement to rectify this problem.
• The Canada Pension Plan was meant to top up the coverage provided by employers. But 62 per cent of workers have no employee pension. It would take a major expansion of the CPP – financed by another hike in premiums – to provide an adequate pension for all members of the workforce.
• Registered retirement savings plans were created to encourage Canadians to set aside money for their non-working years. Contributions are tax sheltered. But the vast majority of Canadians (69 per cent) don’t contribute.

Seniors have not been putting away savings anywhere else so the result is that millions of Canadians are heading toward retirement with too little to live on for the rest of their lives.

A solution will require that all levels of government work together and the Federal Government must provide the leadership in this if timely solutions to this pension crisis are to be developed.

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Post from: Senior Money Memos

The Pension Crisis

Technorati Tags: Canada Pension Plan, Jack Layton, Old Age Security, rrsp

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The Canada pension plan is on a strong footing, according to a Forbes video news item.  The CPP Investment Board is managed independently of the Canada Pension Plan by experienced investment professionals to help sustain the future pensions of 17 million Canadians. The CPPIB’s investments have taken a hit but its management has been winning praise from around the world.

The CPP Investment Board has a website where you can learn more about its activities. Its role is to invest the CPP Fund to maximize returns without undue risk of loss. It also has a series of frequently asked questions with perhaps the most important one being the following:

Should Canadians be concerned about their CPP pensions?

No. Canadians receiving their CPP benefits have no cause for concern.  The $117 billion portfolio that we manage today is not being used to help pay pensions today.  In fact, it will be another another 11-12 years before a small portion of the CPP Fund’s investment income will be needed to help pay pensions.

Beyond that time, the CPP Fund will continue to grow for decades to come.  The $117 billion CPP Fund is broadly diversified and structured to help secure Canadians’ CPP pensions over the long-term. It is designed to withstand stock market cycles such as this one.

For more specific information on the actual pension arrangements, the following Canadian Government websites are useful:

• Income Security Programs
• Information on the Canada Pension Plan (CPP)

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Canada Pension Plan Still Strong

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