Canada must prepare for our aging population

Canada, like all industrialized countries, is experiencing an aging population. Unlike most industrialized countries, however, Canada is doing almost nothing to prepare for the implications of an older population, and in some cases, is moving in the wrong direction.

There’s ample evidence that Canadians are living longer. According to Statistics Canada, life expectancy in 2011 was 81.7 years of age compared to just 57.1 years of age in 1921. The combination of Canadians living longer with the population bulge of the baby boom generation means seniors are on track to represent 25 per cent of the Canadian population by roughly mid-century compared to less than 15 per cent in 2010.

As a recent study noted, the aging of our population will place enormous strains on government finances. First, several government programs that are sensitive to demographics will experience significant cost pressures. For instance, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) are two income transfer programs supporting seniors. The expectation is that the cost of these programs will increase by 47 per cent between 2017 and 2047 based on a larger share of the population being eligible for such programs.

Similarly, health-care costs are heavily influenced by seniors since so much of our lifetime consumption of health care occurs after the age of 65. For example, in 2014, government per person spending on health care was 4.4 times more for seniors over age 65 compared to Canadians aged 15 to 64.

Second, these spending increases will occur the same time the share of the population in the labour force will decline. Data suggests that Canada’s labour force participation rate will decline from its peak of 67.6 per cent in 2008 to roughly 61.0 per cent by mid-century. This decline means economic growth will be slower than in previous periods, which means it will be more difficult for governments to raise revenues.

The combination of higher spending and slower-growing revenues means the likelihood of much larger deficits in the future unless programs are reformed. A recent calculation suggested that government deficits could grow as large as $143 billion (in current dollars) by 2045 if no changes are made.

In 2012, the Harper government made a rather tepid reform to change the age of eligibility for Old Age Security and the Guaranteed Income Supplement to 67 starting in 2029. The changes were to be implemented between 2023 and 2029.

Shortly after taking office, the Trudeau government reversed this reform to maintain the age of eligibility for both programs at 65. It’s estimated that this policy reversal will cost the government an additional $10.4 billion in 2030.

Perhaps more telling, a recent study illustrated how out of step this decision is with other major industrialized countries. Of the 22 high-income countries in the Organization for Economic Cooperation and Development (OECD) apart from Canada, more than 80 per cent (18 countries) are implementing some form of increase to the age of eligibility for public retirement programs.

Of those 18 countries enacting changes, almost 60 per cent are moving to 67 years of age. Ireland and the United Kingdom are going further by increasing the age of eligibility to 68.

In addition, five countries are indexing their age of eligibility for public programs so it will automatically increase as life expectancy changes. Canada is one of only five countries that have decided to do nothing despite mounting evidence of the fiscal pressures coming down the pike due to the aging of our population.

The adverse consequences from an aging population, namely large deficits, mounting debt and slowing economic growth can be mitigated if proactive actions are taken now. Rather than ignore the problem or make matters worse, as the federal government’s policy reversal has done, it’s time for the federal and provincial governments to show leadership by proactively preparing for the aging of our population.