Aging population could hit Quebec the hardest
Quebec needs to raise the retirement age from 65 to 67 and increase the pension payout for people retiring after age 65 if it wants to maintain a competitive workforce, according to a Montreal economist.
The aging workforce and the looming baby boomer retirements are especially concerning for Quebec where early retirement has been the norm, said Norma Kozhaya, who wrote the report The Retirement Age in Quebec: A Worrying Situation for the Montreal Economic Institute.
“You have less people in the labour force, so you have less people who are working, who are contributing to the production and the wealth creation in the province. And you also have less people contributing to taxes, while at the same time you’ll have more spending, mainly on the health-care sector,” she said.
Quebec has one million people aged 65 and older, which represents 14.3 per cent of the population, according to Statistics Canada’s 2006 census. This proportion is projected to jump to 25 per cent by 2031, compared to 23 per cent for the rest of Canada.
Older workers in Quebec are also more likely to leave the workforce early. Quebec’s average retirement age is 60.1 years compared to a national average of 61.5. And its labour force participation rate among people aged 55 to 64 is only 52 per cent compared to 61 per cent for the rest of Canada.
There are several reasons older workers leave the workforce sooner in Quebec, including weaker job creation, higher unionization rates and higher personal tax rates, said Kozhaya.
“Above all, one important factor is incentives for early retirements present within private pension plans,” she said.
When someone retires before 65, his public pension plan (Canada Pension Plan or Quebec Pension Plan) is reduced by 0.5 per cent for each month before age 65. However, those who have private pension plans often receive bridge benefits, which bring their early retirement income to a level comparable to that received at the normal retirement age.
These measures, combined with income tax, actually make early retirement more attractive than working.
The typical 60-year-old worker enrolled in a private defined benefit pension plan earning an hourly rate of $28.85, and working full time, would only receive an additional $8.40 per hour worked compared to early retirement, according to the Quebec Department of Finance’s 2007 report Promoting Phased Retirement. If that same worker wanted to phase into retirement by working part time, he would only earn an additional $4.32 an hour.
“We have to make work pay more than is presently the case or make retirement less attractive,” said Kozhaya. “When you retire after 65, you have an increase in what you get, but this increase presently is not sufficient to encourage people to work later.”
To make later retirement more attractive, Kozhaya proposes for every month past 65 a person works, he should receive a 0.7-per-cent increase in his pension instead of the current 0.5-per-cent increase. She also proposes a corresponding 0.7-per-cent decrease for those who retire early.
Quebec should also increase the normal retirement age to 67 from 65, said Kozhaya. Not only would the change encourage an older average retirement age, it would also save money, she said.
“There’s no crisis in the pension plan but there’s no guarantee that eventually we won’t have to increase premiums or contributions or lower benefits if we’re not looking at changing the normal retirement age,” she said.
There are international precedents for increasing the retirement age. The United States is raising the age from 65 to 67 between 2001 and 2027 and, in Germany, the age will rise from 65 to 67 between 2012 and 2029.
However, changing the retirement age under the Canada Pension Plan and the Quebec Pension Plan (C/QPP) is easier said than done, said Michel St-Germain, a Montreal-based principal at HR consulting firm Mercer.
“Amending the C/QPP is probably as difficult as amending the Canadian constitution,” he said.
Instead of raising the top tier from 65 to 67 to encourage people to retire later, it would be easier to raise the minimum retirement age from 60 to 62, said St-Germain.
However, even without government intervention the labour shortage will force the average retirement age to increase, he said.
“If we need older workers, employers will find a way of attracting, retaining and keeping those older workers,” he said.
Instead of giving early-retirement incentives, employers should funnel that money toward workers who retire later, said St-Germain.
“The longer you stay, the longer you work, the more benefits you get,” he said.
For many older workers, the increase in life expectancy means they’ll have to work longer, said David Cravitz, the senior vice-president of marketing for CARP, Canada’s Association for the Fifty Plus.
“Baby boomers are living longer and their biggest worry is about outliving their money,” he said. “They’re not likely to cash out early.”
However, money isn’t enough. HR consulting firm Towers Perrin’s research on engagement found for workers over 55, interesting and challenging work, as well as having the ability to work reduced hours while accruing a pension, are the top factors that would keep them working, said Ofelia Isabelle, principal at Towers Perrin’s Toronto office.
Mentoring and coaching the next generation of leaders will give older workers that sense of satisfaction and allow organizations to hold on to their knowledge, she said.
The aging workforce and the looming baby boomer retirements are especially concerning for Quebec where early retirement has been the norm, said Norma Kozhaya, who wrote the report The Retirement Age in Quebec: A Worrying Situation for the Montreal Economic Institute.
“You have less people in the labour force, so you have less people who are working, who are contributing to the production and the wealth creation in the province. And you also have less people contributing to taxes, while at the same time you’ll have more spending, mainly on the health-care sector,” she said.
Quebec has one million people aged 65 and older, which represents 14.3 per cent of the population, according to Statistics Canada’s 2006 census. This proportion is projected to jump to 25 per cent by 2031, compared to 23 per cent for the rest of Canada.
Older workers in Quebec are also more likely to leave the workforce early. Quebec’s average retirement age is 60.1 years compared to a national average of 61.5. And its labour force participation rate among people aged 55 to 64 is only 52 per cent compared to 61 per cent for the rest of Canada.
There are several reasons older workers leave the workforce sooner in Quebec, including weaker job creation, higher unionization rates and higher personal tax rates, said Kozhaya.
“Above all, one important factor is incentives for early retirements present within private pension plans,” she said.
When someone retires before 65, his public pension plan (Canada Pension Plan or Quebec Pension Plan) is reduced by 0.5 per cent for each month before age 65. However, those who have private pension plans often receive bridge benefits, which bring their early retirement income to a level comparable to that received at the normal retirement age.
These measures, combined with income tax, actually make early retirement more attractive than working.
The typical 60-year-old worker enrolled in a private defined benefit pension plan earning an hourly rate of $28.85, and working full time, would only receive an additional $8.40 per hour worked compared to early retirement, according to the Quebec Department of Finance’s 2007 report Promoting Phased Retirement. If that same worker wanted to phase into retirement by working part time, he would only earn an additional $4.32 an hour.
“We have to make work pay more than is presently the case or make retirement less attractive,” said Kozhaya. “When you retire after 65, you have an increase in what you get, but this increase presently is not sufficient to encourage people to work later.”
To make later retirement more attractive, Kozhaya proposes for every month past 65 a person works, he should receive a 0.7-per-cent increase in his pension instead of the current 0.5-per-cent increase. She also proposes a corresponding 0.7-per-cent decrease for those who retire early.
Quebec should also increase the normal retirement age to 67 from 65, said Kozhaya. Not only would the change encourage an older average retirement age, it would also save money, she said.
“There’s no crisis in the pension plan but there’s no guarantee that eventually we won’t have to increase premiums or contributions or lower benefits if we’re not looking at changing the normal retirement age,” she said.
There are international precedents for increasing the retirement age. The United States is raising the age from 65 to 67 between 2001 and 2027 and, in Germany, the age will rise from 65 to 67 between 2012 and 2029.
However, changing the retirement age under the Canada Pension Plan and the Quebec Pension Plan (C/QPP) is easier said than done, said Michel St-Germain, a Montreal-based principal at HR consulting firm Mercer.
“Amending the C/QPP is probably as difficult as amending the Canadian constitution,” he said.
Instead of raising the top tier from 65 to 67 to encourage people to retire later, it would be easier to raise the minimum retirement age from 60 to 62, said St-Germain.
However, even without government intervention the labour shortage will force the average retirement age to increase, he said.
“If we need older workers, employers will find a way of attracting, retaining and keeping those older workers,” he said.
Instead of giving early-retirement incentives, employers should funnel that money toward workers who retire later, said St-Germain.
“The longer you stay, the longer you work, the more benefits you get,” he said.
For many older workers, the increase in life expectancy means they’ll have to work longer, said David Cravitz, the senior vice-president of marketing for CARP, Canada’s Association for the Fifty Plus.
“Baby boomers are living longer and their biggest worry is about outliving their money,” he said. “They’re not likely to cash out early.”
However, money isn’t enough. HR consulting firm Towers Perrin’s research on engagement found for workers over 55, interesting and challenging work, as well as having the ability to work reduced hours while accruing a pension, are the top factors that would keep them working, said Ofelia Isabelle, principal at Towers Perrin’s Toronto office.
Mentoring and coaching the next generation of leaders will give older workers that sense of satisfaction and allow organizations to hold on to their knowledge, she said.
