In a recent article, Rob Carrick suggested increasing the tax clawback for Old Age Security (OAS) as a way to control costs. This would have the effect of lowering benefits without having to increase the retirement age. However, I think we need to have goals other than just cost containment.
Life expectancy has risen considerably since 65 was chosen as a retirement age. Instead of increasing the retirement age as life expectancy rises, government workers tend to retire in their late 50s, with many retiring at age 55. Many of these workers will be retired as long as they were working. This is not sustainable.
Outside of powerful unions in the public and private sectors, pensions are generally dismal by comparison. Many advocate an improved pension system for all that is as strong as the pensions that government workers enjoy. This will never happen. How could we possibly run a country if nearly half of all adults are retired? Who would mow the lawns on the golf courses?
We need a better pension system for all Canadians, but it must start with a sensible retirement age. I think 70 is about right. If OAS payments didn’t start until 70, then the monthly benefits could be higher than they are right now. If CPP payments didn’t start until age 70, then they could be actuarially increased as well.
We also need a pension system that is portable from job to job. Hopefully, the new Pooled Registered Pension Plans (PRPPs) will become a sensible option with portability; it is unreasonable to expect people to stay with the same employer for their entire working lives.
With a focus on a retirement age of 70, OAS and CPP benefits could be higher, and employer-based pensions with comfortable benefit levels would be much more affordable. Workers would be able to count on comfortable retirement income starting at age 70 without needing other savings.
None of this would preclude people from retiring before age 70. To do so, the goal would be clear; if you can save up 10 years of living expenses by age 60, then you can retire knowing that even if your savings are gone by age 70, you’ll be safe. For those who can’t save anything, at least they will know that they will have a comfortable retirement income at age 70.
There will be cases of people who are unable to work until age 70 for health reasons. It would make sense to allow these people to access their (actuarially-reduced) pensions early. But this should be the exception rather than the rule. The vast majority of people should not start accessing OAS, CPP, or employer-based pensions until age 70.