Society

By 2050, the number of people aged 65 and older will more than triple, to 1.5 billion worldwide. Aging presents a significant challenge to the long-term sustainability of public finances through increases in demand for public pensions, health services, and long-term care in Canada and its peer countries. Together, rising life expectancy and low fertility create a demographic pincer movement, the impact of which is sharpened by increasingly early retirement. In Europe, there are about 35 people of pensionable age for every 100 people of working age. If present demographic trends continue, there will be 75 pensioners for every 100 workers in 2050.¹

Canada, like its peers, has a greying population. In 2030, an estimated 23 per cent of the Canadian population will be over age 65, double the share in 1990.

Elderly poverty is both a social and a fiscal problem that will be exacerbated as higher percentages of populations in developed countries move into the over-65 demographic. Poverty rates among the elderly tend to be highest among women, particularly widows over the age of 75. This is largely due to pension allowances that have traditionally been linked to employment history.

As Canada and its peers work to encourage the growth of private pensions as a means of decreasing reliance on public pension systems, the most vulnerable among the elderly are being put at greater risk of poverty. According to The European Centre for Social Welfare Policy and Research, “Systematic reforms have changed the nature of pension provision from defined benefit type provisions to defined contribution type provisions.”² Defined contribution plans—in which people receive only what they put into the plan plus whatever that investment earns—can result in a greater risk of poverty in retirement for people who have earned less while working.

Canada does extremely well relative to its peer countries in ensuring an adequate standard of living for its elderly. Canada ranks in second place on this indicator and receives an “A” grade. In most Organisation for Economic Co-operation and Development (OECD) countries, poverty is highest among children and the elderly, and lowest among the working-age cohort. In Canada, however, the 5.9 per cent poverty rate among the elderly is much lower than in the other two cohorts.

Canada’s publicly supported retirement security system comprises a universal component (Old Age Security), a negative income tax (Guaranteed Income Supplement), and an earnings component (Canada/Quebec Pension Plan). The first two establish an income floor that is available to all, regardless of participation in the paid labour force.

The Netherlands is the only country that outperforms Canada on this indicator, with an elderly poverty rate of 2 per cent, according to the most recent numbers. Like Canada, the Netherlands offers a universal pension. It is available to anyone who has been a resident in the country between the ages of 15 and 65, regardless of previous employment. The flat-rate benefits are indexed to wages and funded by social contributions, with premiums collected as part of the personal income tax.

The Netherlands is unique among its peers, in some ways, because state pensions account for less than 50 per cent of total pension income. This is largely due to the introduction, in the late 1990s, of a second “pillar” to the pension scheme, a quasi-mandatory occupational pension, where members of the labour force make contributions to a private pension scheme through their employers. The second pillar now covers about 90 per cent of the population.³ The third—and still emerging—pillar, is private, individual, and voluntary—tax deductible contributions made to annuity insurance, for example.

In 2005, it was estimated that approximately one-third (31 per cent) of Ireland’s elderly population was living in poverty. Ireland is notably among the least generous of its peers in the OECD, in terms of the minimum amount provided through its state pension.

Despite the economic boom in the 1990s and early 2000s, Ireland has been criticized for failing to protect its most vulnerable citizens. A recent OECD economic survey of Ireland concluded that increases in the flat-rate state pension have reduced poverty among the elderly, “but there is still a large gap for most people between the state pension and an adequate replacement income in retirement . . . Current tax incentives to encourage more private pensions are very costly and poorly targeted.”⁴

Yes. Dalhousie University economics professor Lars Osberg has called the reduction in the elderly poverty rate over the past three decades “the major success story of Canadian social policy in the twentieth century.”⁵

The span of OECD data used in the report card for this indicator is quite limited, extending only as far back as the mid-1990s. According to this data, Canada’s elderly poverty rate increased from 2.9 per cent in the mid-1990s to 5.9 per cent in the mid-2000s. The biggest jump occurred in the group of elderly persons living alone—most likely widowed women.

The Luxembourg Income Study, however, has Canadian data going back to 1971 (but only extends to 2004). Using this data set, Canada’s elderly poverty rate fell by an extraordinary 30 percentage points—from 36.9 per cent in 1971 to 6.3 per cent in 2004.

The pronounced decrease in Canada’s elderly poverty rate has largely been attributed to the implementation of the Canada Pension Plan and Quebec Pension Plan in 1966. Pensions as a proportion of disposable income among Canada’s elderly more than doubled between 1980 and 1996, from 21 to 46 per cent.⁶ The first cohort to receive full public pensions turned 65 in 1976. The generation that followed became the first beneficiaries of private occupational pensions that were expanded between the 1950s and the 1970s.

Unlike the U.S. system, which relies almost entirely on the earnings-related pension component, Canada’s system also offers a guaranteed income in the form of Old Age Security (OAS), regardless of past participation in the labour force. The success of the Canada Pension Plan and Quebec Pension Plan and the increased dependency of seniors on public and private pensions in the late 1980s, however, led to a “clawback” or total elimination of OAS benefits for 5 per cent of Canadian seniors. This has led to some debate about whether Canada is spending too much public money on its elderly. It should be noted, however, that the actual level of old-age income relative to average earnings is still lower in Canada than in many of its peer countries.

If current trends continue, the population of Canadians over the age of 65 is expected to increase to more than one-fifth of the total population by 2030. Although Statistics Canada notes that "Canadian public expenditures on pensions are modest by international standards and are projected to peak at levels well below those anticipated by most other Western nations," the sustainability of public pensions and Old Age Security may be at risk.⁷

There are a number of ways to offset the labour force and fiscal pressures that will arise as a result of Canada’s aging population:
1) increase immigration
2) introduce family-friendly policies to increase fertility rates
3) develop policies and practices to increase the labour force participation of older people

Because most developed countries will be competing for immigrants, the Conference Board sees the third strategy as an effective means of sustaining labour force growth in Canada.

Indeed, most developed countries have introduced policies and organizational practices that target older workers, including:

• reducing incentives for workers to take early retirement
• encouraging later retirement and flexible retirement
• passing legislation to counter age discrimination
• helping older workers find and keep jobs

To understand how Canada can cope with the looming demographic crunch read: Mission Possible: Stellar Canadian Performance in the Global Economy, Chapter 6, Ottawa: The Conference Board of Canada, 2007.

The Canadian National Council of Welfare argues that the only way to reduce poverty in Canada is with a national, long-term anti-poverty strategy that includes measurable targets and timelines, as well as a plan of action to encourage cohesion among governments and departments. The publication of its report Solving Poverty: Four Cornerstones of a Workable National Strategy for Canada in late 2007, made the issue central to the 2008 Speech from the Throne.⁸ In April 2008, the House of Commons Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities unanimously agreed to devote a series of hearings to developing a national poverty plan.

² Asghar Zaidi, Poverty of Elderly People in EU25, The European Centre for Social Policy and Research. Policy Brief, August 2006.

³ David Natali, The Netherlands: The Pension System, [online, cited September 13, 2009].

⁴ OECD, Economic Survey of Ireland, 2008, April 2008, pp. 7-8, [online, cited September 29, 2008]. 

⁵ Lars Osberg, “Poverty Among Senior Citizens,” The State of Economics in Canada: Festschrift in Honour of David Slater, edited by Patrick Grady and Andrew Sharpe, (Kingston, Ont.: Queen’s University), p. 170.

⁶ John Myles, The Maturation of Canada’s Retirement Income System: Income Levels, Income Inequality and Low-Income among the Elderly, Statistics Canada Cat. No. 11F0019MIE2000147, (March 6, 2000), p. 1.

⁷ John Myles, The Maturation of Canada’s Retirement Income System: Income Levels, Income Inequality and Low-Income among the Elderly, Statistics Canada Cat. No. 11F0019MIE2000147, (March 6, 2000).

⁸ National Council of Welfare, Solving Poverty: Four Cornerstones of a Workable National Strategy for Canada, [online, cited September 13, 2009].