Accountants offer two cents on aging workforce

Study details possible costs and problems of baby boomer exodus from workforce
By Jerry Langton
|Canadian HR Reporter|Last Updated: 03/03/2005

The accountants have added everything up and can confirm: Canada’s aging population will produce massive HR headaches lest innovative employment policies and programs are implemented, and soon.

The Certified General Accountants Association of Canada released a report on how the aging population will affect labour, management, government and HR professionals over the next few years.

Called

Growing Up: The Social and Economic Implications of an Aging Population

, the report is a comprehensive compilation of current Canadian data and recommendations on aging. It explores the question: What is to be done about an aging workforce?

The report not only looks at the problem, but also offers some solutions. “We’re accountants, all we know is prudence,” said Rock Lefebvre, the CGA’s vice-president of research and standards and author of the report.

Canada, like most industrialized nations, has a workforce that is rapidly getting older and concerns are mounting that a disproportionate number of people will soon be ready to retire. But, as the report points out, we’re not exactly ready for it.

“The way we’re treating the aging of our population is like how prehistoric humans looked at glaciers,” said Bill Robson, an expert on aging at the C.D. Howe Institute in Toronto. “We see it there and it’s okay for now, but when it finally arrives, it will have a profound effect on the landscape.”

One of the most significant changes will be the increased cost that society as a whole, and government in particular, have to pay for retirees.

“People are living longer and are healthier,” said Lefebvre. “People are retiring and routinely living for another 40 years.” Because retirees are eligible for CPP and other government benefits and because their replacements must be found and trained, every retirement costs companies and consumers money.

“Every extra year a person works adds 3.5 per cent to his or her contribution to the gross domestic product,” said Lefebvre. “If they’re working, not only are they not collecting benefits, but they’re contributing to the workforce.”

If organizations are looking to slow the flow of older people out of the workplace, they should be careful not to make early retirement benefits too enticing or offer buyout packages too quickly, even when cost-cutting is a priority. HR professionals have to keep in mind that older workers may be tempted to retire even if it’s not in their — or the employer’s — best interest.

“Companies often offer incentives for early retirement when they see their labour costs getting out of line,” said Robson. “But although that can give the immediate bottom-line a boost, the long-term costs can be huge — losing skilled workers at any age is very expensive.”

A common response by employers looking to keep older employees is to ramp up salary. Although that seems like a logical response, it doesn’t always work.

“The point of higher pay is to make employment more attractive than leisure but it also makes leisure more affordable,” said Robson. “They tried to retain B.C. teachers with higher pay, but it had the opposite effect. More of them chose early retirement — the government was basically paying for more golf time.”

The CGA suggests that governments work together to establish what it calls a “seniors health account” to help pay for the increased amount of health care that will be required as people age. “It should be modelled along the lines of CPP or EI,” said Lefebvre. “A separate fund dedicated to the special requirements of older people would alleviate much of society’s fear of hiring or retaining older workers.”

Though ever prudent, the accountants did support one creative idea often called for by HR professionals. The Income Tax Act should be adjusted to enable more phased-in retirement.

As clearly imminent as the situation is and as comprehensive as the report is, it shouldn’t be seen as anything more than an indication of what direction the marketplace is headed, said Sharon Sholzberg-Gray, president and CEO of the Canadian Healthcare Association.

“The problem with the report is that it’s based on predictions assuming efficiencies in the future will be exactly the same as they are today when new technologies are arriving all the time. If we made the predictions 20 years ago based on what we knew then, we’d be dead wrong.”


The numbers of an aging workforce

•In 2001, the median age within the core workforce age group (20 to 64) was 41.3 years of age. By 2011, it is projected to rise to 43.7.

•In Canada today, there are about 19 retirees for every 100 workers. The elderly dependency ratio is projected to rise to 39 retirees for 100 workers by 2030, and to 44 retirees for every 100 workers by 2050.

•The ratio between people aged 60 to 64 years (those who reduce their hours of work or who leave the workforce) and those aged 20 to 24 years is now at 0.6:1.0, which means that for every six people who leave, 10 people enter the workforce. This ratio is expected to continue to rise and will equalize by around 2016. But by 2026, it is predicted that for every 13 people who leave the workforce, only 10 will enter.

•Based on the 2002 Canadian Labour Force Survey, the average age of retirement in Canada is 61.2 years.

•Two-thirds of Canadians retire before the full Canada Pension Plan/Quebec Pension Plan benefit age of 65, oftentimes involuntarily.

•Between 1987 and 1990, 29 per cent of people retired before the age of 60 years. That rate grew to 43 per cent between 1997 and 2000. Early retirement is more common in the public sector where the average retirement age in 1999 was 58.5 years, compared to 61.3 years in the private sector and 65 years for the self-employed.

•Generally, seniors over 65 are retired, but about six per cent, are still economically active. More senior men (about 10 per cent) are in the labour force compared to women (about 3.5 per cent). Overall, seniors comprise less than two per cent of the total workforce in Canada.

Source: Certified General Accountants Association of Canada

Jerry Langton is a Toronto-based freelance writer.

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