On moving Canada’s retirement age from 65 to 67

by Alan Cohen


For those of you who don’t keep on top of Canadian politics (and may not have heard that we’re eliminating the penny – yay!), the latest budget by the conservative government proposes changing the eligibility age for Old Age Security (OAS – a rough equivalent of US social security) from 65 to 67, to be phased in by 2029. There has been a lot of debate in the media here, and I wanted to chime in, especially since this debate parallels one going on in the US and elsewhere.

First, I should say that I have none of the economic or policy expertise to evaluate the details of Canada’s plan. I don’t know if this is essential to maintain Canada’s fiscal stability or not and I don’t know much about the social consequences.

What I do know about is aging and demography. And what’s clear is that not only are we living longer than ever, we are aging slower than ever. A 65 year old today is effectively younger than a 65 year old 100 years ago. What this means is that maintaining the chronological age for OAS eligibility static (at 65) is effectively a policy to reduce retirement age. This may or may not be desirable based on our budgets and societal priorities, but it should be acknowledged that over time maintenance of the status quo becomes, effectively, a radical policy shift.

The first social security system in the world was implemented in Bismarck Germany in 1881, with a retirement age of 70. I have been told at conferences that life expectancy for a 70 year old German in 1881 was about 1 year. This sounds a bit low to me, but it’s clear that it wasn’t long, let’s say 1-5 years.

Demographers and economists often talk about a dependency ratio, essentially the number of non-workers supported by workers divided by the number of workers. The more children and elderly, and the fewer workers, the higher the dependency ratio. This is often broken down into the childhood and old aged dependency ratio for these respective portions of the population, and it is the latter which concerns us (though the increasing amount of time young people spend in school before entering the workforce is not unimportant). Crudely speaking (assuming the same cost of living for all individuals), we can estimate the aged dependency ration as the life expectancy at retirement age divided by the number of years in the workforce, multiplied by 100 (i.e., the number of dependents supported by each 100 working people). Assuming a worker in Bismarck Germany entered the workforce at age 20, the aged dependency ratio was something like 2-10, meaning that a relatively small portion of each worker’s salary was needed to support the retired. (In reality it was much lower because many workers died before retirement).

You can see the projected trends for Canada here. It’s clearly much higher than it was, though it’s not clear if this is high enough to be a fiscal problem.

At the same time, life expectancy in developed countries has increased by about 1 year every five years for at least the last 100 years. This used to be driven mostly by declines in infant mortality, but is now driven mostly by lower old-age mortality. (Life expectancy is an awful statistic for many reasons, most notably that it mixes infant and old-age mortality, two very different phenomena).

Meanwhile, there is excellent reason to believe that these differences in mortality are not simply due to people living longer sick – older people are healthier than they used to be. This can be seen in many ways. First, there appears to be morbidity compression (i.e., shorter period of illness before death) despite longer lifespans. Second, anecdotally we can see that people of the same age often appear much older in developing countries, or if they have lived hard lives. Third, the regularity of the mortality declines suggests that we have indeed succeeded in delaying by changing our environments and lifestyles during the last century. Crudely, then, a 70 year old today may be physiologically like a 60 year old 50 years ago. And yet today’s 70 year old is five years into retirement, whereas 1962’s 60 year old was still five years from it.

There are many reasons to hesitate about changing the retirement age. Will it disproportionately affect the poor, who (probably?) age faster than the rich? Is it necessary? What about manual labourers who may not be able to continue their work, and who may be let go under false pretences? Personally, I would favor a graded system that lets people retire whenever they want but gives them more and more incentives to work longer and longer, and that helps the poor and manual labourers disproportionately based on their lifetime income history. But it is certainly right to start asking questions about whether we should ask people to contribute to society longer now, given their steadily increasing health spans.

The figure is taken from Yashin AI, Begun AS, Boiko SI, Ukraintseva SV, Oeppen J. “New age patterns of survival improvement in Sweden: do they characterize changes in individual aging?” Mech Aging Dev 2002;123:637– 47. It shows mortality compression in Sweden.