By Lauren Bride

The Department of Finance of Canada recently released a report on the implications of the nation’s aging population and its effect on Canada’s economy, as well as the overall climate for employment.

While the report is prefaced by disclaimers about the general unpredictability of the future, projections following anticipated trends are outlined. The demographics of the aging baby boom generation and the context of this population change on a global scale are documented, followed by an analysis.

The report operates under the following assumptions:

• Life expectancy at birth for females is expected to increase from 82.9 years in 2006 to 87.3 years in 2036. For males the life expectancy at birth is expected to rise from 78.2 years in 2006 to 84.0 years in 2036.
• The fertility rate for Canada used for the entire projection period is 1.70 children per woman.
• Except for the first three years, where data used are drawn from the immigration plan as formulated by Citizenship and Immigration Canada, the annual immigration rate is assumed to represent 0.75 per cent of the total population. When accounting for emigration and returning emigrants, the net immigration rate for Canada is assumed to range between 0.60 and 0.66 per cent over the projection period.

These figures are drawn from a separate report titled “Population Projections for Canada, Provinces and Territories-2009 to 2036”, published in 2010.

In brief, Canada’s population is aging more rapidly than most other countries in the world, though there are notable exceptions. The aging of Canada’s population will soon slow labour force growth. Over the next 20 years, the number of working-age Canadians for every senior will fall from about 5 today to 2.7 by 2030. Unless productivity growth and labour market participation improve, population aging is expected to lead to significantly slower increases in real output and income and increase the possibility of labour shortages.

Maintaining the priorities listed in the 2012 federal budget, the report calls for the creation of policies to further stabilize Canada’s economy, and to sustain public financing and social programs (i.e. Old Age Security) which will be essential to the aging baby boom age group. Practical solutions to the recent budget’s call to support an active and engaged workforce are needed, while limiting the overall government spending required.

These budgetary measures as stated in the report include,

• To help ensure that Canada’s social programs remain sustainable over the long term and are reflective of ongoing demographic realities, Budget 2012 announced that, starting in April 2023, the age of eligibility for OAS and Guaranteed Income Supplement (GIS) benefits will be gradually increased from 65 to 67, with full implementation by January 2029. In line with this increase in the age of eligibility, the ages at which the Allowance and the Allowance for the Survivor are provided will also gradually increase from 60-64 today to 62-66 starting in April 2023.
• As a result of these changes, OAS expenses as a share of the economy are expected to be 0.3 percentage points of GDP lower than they would have been by the end of the 2020s, the years during which aging pressures on the OAS program are expected to be the strongest.
• Starting on July 1, 2013, Budget 2012 also announced the voluntary deferral of the OAS pension, for up to five years, allowing Canadians the option of deferring take-up of their OAS pension to a later time and receiving a higher, actuarially adjusted, annual pension. While this measure will not produce fiscal savings on an ongoing basis, it could help meet the aging challenge through higher labour force attachment and participation.
• In addition, Budget 2012 announced that the 2010-2012 triennial review of the Canada Pension Plan (CPP) confirms the financial sustainability of the Plan, as reported by the Chief Actuary of the CPP, for at least the next 75 years at the current contribution rate.
• Combined with recent changes to the OAS program, a sustainable CPP will ensure that Canada’s public retirement income system remains strong in the future.

Lauren Bride is an editor at HRinfodesk.com–Canadian Payroll and Employment Law News.

Originally published in HRinfodesk–Canadian Payroll and Employment Law News and Developments November 2012.

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