The Observer


Acting Now, So We Can Age In Peace In The Future

by Bernard Morency

The Canadian retirement system is the envy of many countries. The poverty rate amongst our elderly is low. The cost of our national pension plans, OAS, GIS and C/QPP, are manageable and their governance is strong and transparent. There is some flexibility as to when Canadians can draw their OAS/GIS and C/QPP pensions and older Canadians have access to good health care services at a reasonable cost for most of them. Yet, we have our challenges.
First, the poverty rate amongst our 65+ population has increased over the last few years. It will continue to do so mostly because our OAS and GIS programs are indexed to inflation and not to salary increases and, also, because many people who immigrate to Canada when they are adults will not qualify for full OAS benefits.
Second, while almost 90% of public sector workers have access to a Registered Pension Plan (RPP), only 23% of private sector workers do. If you include self-employed people, it means that for close to 12 million working Canadians, the third pillar of our retirement system, the one that sits on top of OAS/GIS and C/QPP, has become a « Voluntary Do-it-Yourself » endeavor! Heavy reliance on voluntary retirement savings can lead to greater inequalities amongst retirees. How do we make sure this doesn’t happen to us?
The recent decision to enhance the C/QPP pension benefits is a great step in the right direction but it will take a long time to mature and, as the table below shows, it barely compensates for the cumulative impact of OAS/GIS being indexed to inflation not to salary increases.
Income replacement ratios from Public Plans at 65

(Note: Single person with no other retirement income claiming C/QPP at age 65)

Third, our population is aging...quite rapidly! Indeed, in 15 years (i.e. in 2033), nearly 30% of Canadians will be age 60 or more. Over 1.4 million of them will be 85 or more.  How we keep people between the ages of 60 and 75 engaged in their communities and in the workforce should be given a lot of thought. How we provide, and pay for, adequate long-term care, nursing care and other medical services for the 85+ is also a preoccupation.
The Fraser Institute estimated that the cost of health care would go from $148B (7.3% of GDP) in 2016 to $324B (9.3% of GDP) in 2031. This is on top of the cost of OAS and GIS which will increase from $55B (2.6% of GDP) in 2018 to $109B (3.2% of GDP) in 2031. We all knew this was coming but did we realize it was coming that fast?
In addition to the challenges that an aging and more diverse population create, our political, business and union leaders must also think of the implications of Technology and Artificial Intelligence on our lives and how work is organized. However difficult it is to foresee their impact on individuals, organizations and governments, ignoring it is not an option. The keys to success include:

  • the ability of individuals to adapt to new technology and a changing work environment;
  • the capacity of employers and unions to revisit their policies and practices to accommodate a more flexible workforce;
  • a welfare system to look after those who will be left behind.

Individuals have already started to adjust but organizations and governments lag! Many Canadians are transitioning for fulltime work to full time retirement over several years partially for monetary reasons but also to gradually get accustomed to life as a retiree especially if they can expect to be retired for over 25 years! Yet many of our benefit plans whether retirement, disability or medical, whether public or private, still draw a hard line at age 65 for eligibility. This may make sense today but will it in 2030, let alone in 2040 or later?
Does our current system fit a world where 30% of the population is over age 60; where the cost of our social program is increasing both in dollars and as a percentage of GDP; where more than 50% of people age 65 make it to age 90; where people must constantly adapt to new technologies; and where Lifelong learning and transitioning from full time work to full time retirement over several years are the norm, not the exception?
Canada is very well positioned to face all these challenges. We are well positioned because our economy is strong, and our population is growing, thanks to immigration. We are also well positioned because our past leaders did not adopt a wait and see approach. They debated and then they acted, boldly with an eye on the long term.  That is what we must continue to do. Because it takes a long time to change social programs, we must start the debate now.
As we debate the future of our retirement system, including health care for the elderly, we must be realistic about demography and what we can afford. We must take a broad look and build on the strengths of our current system: a sharing of responsibilities and a bias towards lower paid people. We must also innovate; make our system simpler, more flexible and more integrated.
Why not consider replacing OAS, GIS and the many other plans aimed at low income retirees with a Guaranteed Minimum Income (GMI) Plan? The benefit could start as early as age 60 but the level of benefit would increase with the starting age up to age 70 so that people have an incentive to defer payment if they can.
Why not use C/QPP to bridge the gap between public and private sector workers and facilitate retirement planning for Canadians who do not benefit from an RPP? This could be done within the confines of the current level of contribution to the Basic and Supplementary C/QPP. Benefits would be integrated with GMI. The replacement ratio from the two plans could vary between 80% for the lower income to 60% for higher income. The age at which you reach the targeted replacement ratio would increase with the person’s income up to age 75.
Why not simplify our lives and replace RRSP, RESP and TFSA with a Registered Global Savings Plan (RGSP) that would encourage people to save for financial security and be very flexible on how one can use the money set aside? RGSP could be used for education at all ages, starting a business, changing careers, and yes for retirement.
These are thought provoking ideas to start the discussion. Let’s share ideas and act now, so we can age in peace later.


 Bernard Morency

Leadership Profile
Bernard Morency is Adjunct Professor at HEC, Montréal where he collaborates with the Retirement and Savings Institute. He is a Senior Fellow of the CD Howe and Global Risk Institutes. He is an independent consultant and a frequent speaker on strategic issues relative to governance, design and investment of retirement programs. He served as a member of the Expert committee on the future of the Québec retirement system and was involved with the legislative changes that followed.

Work Experience
Mr. Morency spent nine years with La Caisse de dépôt et placement du Québec where he was Executive Vice-President, Depositors, Strategy and Chief Operations Officer. He sat on the Executive and the Investment and Risk Committees. He oversaw relations between La Caisse and its depositors, including their strategic asset allocation, and managed the development and implementation of the Institution's three years strategic plan.
Prior to this, Mr. Morency worked at Mercer for over 30 years. He occupied a variety of leadership and senior management roles including Global Retirement Practice Leader, EVP responsible for Mercer’s Retirement, Benefits, Investment and Outsourcing businesses worldwide and President of Mercer Health & Benefits. He was a member of Mercer's Canadian and global executive teams.
Board and Professional Contribution
Mr. Morency serves on the Board of Directors of Desjardins General Insurance Group and of the International Center for Pension Management. He is a Fellow of the Canadian Institute of Actuaries and chairs the Institute’s Public Statements Committee. He is a graduate from Laval University and the Institute of Corporate Directors.