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OTTAWA – Canada’s relatively sound fiscal shape means it will not have to ratchet up the retirement age within the space of 10 years, Human Resources Minister Diane Finley said Thursday.
Finley began putting some meat on the bare bones of its decision to reform old-age security during an interview with The Canadian Press.
The minister said only countries in dire fiscal straits need to adjust their seniors’ benefits within the span of a decade.
Canada won’t be in that position as long as it starts implementing changes immediately, she said — appearing to signal that reforms to Canada’s retirement benefits would be phased in very slowly, over much longer than 10 years.
She also committed to making sure low-income seniors who are adversely affected by the reform are taken care of.
“Any changes that are brought in will allow lots and lots of time for people to change their retirement plans going forward,” Finley said.
“If they’re not already near retirement, there will be a lot of time for them to adjust their retirement planning.”
She said Canada is lagging behind other countries that long ago began preparing their seniors’ benefits to deal with an aging society. But since Canada’s fiscal situation is strong, the federal government still has the benefit of time.
“Other countries have done this. In fact we’re behind on this,” she said. “The implementation period has ranged from 10 years to 40. Ten-year implementations are for those countries that are in desperate straits. Fortunately we’re not in that position.”
But at the same time, Canada can’t afford to wait any longer to begin implementing the changes, she said.
“If change is going to be made, it needs to be made now. If it’s not made now, then the longer we wait, the bigger the change is going to have to be, the harder the decisions are going to be. And we’ve got to take a look at it from that point of view.”
Finley would not delve into details, saying those would come in this month’s budget.
But other government sources have confirmed that the leading policy option is to raise the age of entitlement from 65 to 67. By increasing the age for old-age security, the guaranteed income supplement — a top-up that goes to low-income seniors — would automatically be increased as well.
For the first time, Finley committed to keeping a close eye on how reforms would affect low-income seniors, and make sure they were not inadvertently hurt by the reform.
And she added that Old Age Security is not the only program that will be involved in the reform.
Any government program that hinges on turning 65 will require some fine-tuning, be it federal or provincial, she said.
“There are a number of government programs that are linked to the age of 65. If changes are made to that, then we have to make sure that we co-ordinate and align all programs accordingly, whether that be at Veterans Affairs or any other part of government,” she said.
Calibrating and co-ordinating those re-alignments are other reasons to have a “very lengthy” phase-in for reform, she added.
About 98 per cent of Canadians over the age of 65 receive monthly old-age security cheques of about $500. About a third of those recipients also get the guaranteed income supplement, which is geared to income. Together, the old-age security system and the guaranteed income supplement have dramatically decreased levels of poverty among seniors over the past few decades.
Finley said her government is well aware that low-income seniors are heavily dependent on the government benefits, and has no intention of stranding them. But she stopped short of saying exactly how the government would protect their standard of living.
“There’s a wide range of options that could be considered. The key thing is that we recognize that there is a potential vulnerability and that we will be addressing it as we go forward,” Finley said.
“We’ve demonstrated our commitment to look after our vulnerable seniors and we’re going to continue to uphold that commitment.”
One idea gaining considerable traction among independent analysts as well as some government insiders is a variable pension benefit that rewards seniors for staying in the workforce longer.
Ottawa would still raise the basic age of entitlement to 67. But if seniors want to retire earlier than that and start collecting government benefits sooner, they could — at a lower rate. If they want to stay in the workforce until they’re 70, they could do that too. They would defer their benefits, and collect at a higher rate.
The idea, floated by University of Calgary economist Jack Mintz among others, would save the government money, encourage people to stay in the workforce longer, but also give individuals some choice and flexibility.
The government would still have to take extra steps to take care of low-income seniors. That’s because the Guaranteed Income Supplement, a top-up for poor people, is completely entwined in the old-age security benefit.
Raising the age of entitlement for OAS implies raising the age for GIS. That’s a problem, experts say, because many low-income seniors would have a hard time staying in the workforce an extra couple of years and making ends meet.
“It’s going to be hard on low-income seniors in particular,” says Ken Battle, president of the Caledon Institute of Social Policy.
If the federal government took no action on low-income seniors, the provincial welfare rolls would likely swell and poverty would mount, experts warn.
One practical way to solve this problem would be to take an existing allowance that is already going to low-income single people aged 60 to 64, and expand it to all low-income seniors aged up to age 66, suggests Battle in an options paper published last week by his institute.
He sees no need to raise the age of entitlement to 67, but if the government persists, then enhancing the allowance is a convenient and effective way for Ottawa to make sure it doesn’t exacerbate poverty.