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Strengthening Fairness and Funding in the Canada Pension Plan: Is Raising the Retirement Age an Option?

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  • Martin Hering
  • Thomas R. Klassen

Abstract

This paper seeks to contribute to a forward-looking debate on possible reform options for the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP). Even though it focuses on the CPP, most of its analysis applies to the QPP as well since the two programs are largely identical. This paper does not provide a broad survey of all possible reform options, but rather analyzes one vital option that has received insufficient attention in previous debates: raising the normal retirement age from 65 to 67 years. A discussion of this option is warranted not only because it could prevent future financing problems in Canada’s public pension insurance programs, but also because it could improve fairness across generations. The significant increase in life expectancy raises the question of whether the current retirement ages of 60 years, for earliest CPP and QPP benefits, and 65 years, for full benefits, are too low. Should future generations pay for the longevity increases of the current generation of workers, or should current workers share the costs by retiring at a later age? We conclude that raising the normal age from 65 to 67 years—and the earliest age from 60 to 62 years—is a financially effective, intergenerationally fair, and politically acceptable option for improving the CPP and for addressing the QPP’s problems. We suggest that the option of raising the retirement age needs to be discussed well before longevity increases or funding problems occur and that a broad consultation with stakeholders and citizens would be an essential part of a debate on raising the retirement age in Canada.

Suggested Citation

  • Martin Hering & Thomas R. Klassen, 2010. "Strengthening Fairness and Funding in the Canada Pension Plan: Is Raising the Retirement Age an Option?," Social and Economic Dimensions of an Aging Population Research Papers 263, McMaster University.
  • Handle: RePEc:mcm:sedapp:263
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    File URL: http://socserv.mcmaster.ca/sedap/p/sedap263.pdf
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    References listed on IDEAS

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    1. Michael Baker & Jonathan Gruber & Kevin Milligan, 2003. "The retirement incentive effects of Canada's Income Security programs," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(2), pages 261-290, May.
    2. Robert Brown & Robin Damm & Ishmael Sharara, 2001. "A Macro-Economic Indicator of Age at Retirement," North American Actuarial Journal, Taylor & Francis Journals, vol. 5(2), pages 1-7.
    3. Tammy Schirle, 2008. "Greener Pastures: Understanding the Impact of Retirement Incentives in Defined-benefit Pension Plans," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 262, May.
    4. Schellenberg, Grant, 2004. "The Retirement Plans and Expectations of Non-retired Canadians Aged 45 to 59," Analytical Studies Branch Research Paper Series 2004223e, Statistics Canada, Analytical Studies Branch.
    5. James E. Pesando & Morley Gunderson, 1988. "Retirement Incentives Contained in Occupational Pension Plans and Their Implications for the Mandatory Retirement Debate," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 244-264, May.
    6. Charles Brown, 2006. "The Role of Conventional Retirement Age in Retirement Decisions," Working Papers wp120, University of Michigan, Michigan Retirement Research Center.
    7. Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
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    Cited by:

    1. Peter Hicks, 2012. "Later Retirement: the Win-Win Solution," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 345, March.

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    More about this item

    Keywords

    pension systems; pensions; retirement; retirement age; life expectancy; Canada;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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