Friday, January 27, 2012

More on raising the Old Age Security age eligibility

Update below.

A brief follow-up to yesterday's post on the possibility of a hike in OAS age eligibility here. Here is the first of many analyses likely to come along now that Harper has raised the issue of "major" reforms to Canada's pension system, namely the OAS: "Does Harper really need to raise the retirement age?" The upshot of the piece is that no, he does not.
On the other hand, Canada is different because, unlike most other countries, our public pension commitments are not a substantial threat to our public finances. The Canada Pension Plan is in long-run balance. Old Age Security currently takes only 2.41 per cent of GDP. Very few OECD countries have lower levels of public pension spending as a share of GDP than Canada. To take the extreme example, Italy spends more than 14 per cent of GDP on public pensions -- up from 10 per cent only a few years ago.

How will spending in Canada grow as the baby boomers age? By 2031 -- at the peak of the baby-boom retirement wave -- the share of GDP spent on Old Age Security will rise to 3.14 per cent, for an increase of 0.73 per cent over today’s level. Now, an increase of 0.73 per cent of GDP cannot be ignored, but neither is it disastrous. To provide some scale, David Dodge and Richard Dion project that spending on health will grow from 12 per cent to 18.7 per cent of GDP by 2031, for an increase of 6.7 percentage points. In the fight for government spending dollars in 2031, health is the elephant and the Old Age Security pension is the mouse.
Worth a read.

To be continued.

Update (4:20 p.m.): The PMO's talking points. Don't worry, we're going to phase it in, they say, to stave off criticism. Not dealing with substantive criticisms such as the above though. Yet.