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In this dispatch, The Peak looks at the effects of Canada’s slowing business productivity on the country’s quality of life, how increasing life expectancies are changing retirement and pension systems around the world and why some people might want to start their CPP benefits as early as 60.
Raise the (Retirement) Roof
When the first retirement age was set at 70 back in 19th-century Germany, the average life expectancy in many European countries was less than 42 years. In 1916, the age was lowered to 65 and has remained relatively stable across developed nations ever since.
Driving the news: These countries are now struggling to pay pensions as life expectancies soar above 80 years. This week, China became the latest country to raise its retirement age and announced plans to increase the required contribution period to its pension system.
- Chinese men and women had been stepping back from work as early as 60 and 50, respectively, but the new retirement age is now 63 for men and 55 to 58 for women.
Why it matters: Young people will probably have to work longer than their parents as countries look to address the rising number of retirees relative to the working-age population supporting them. The UN projects that 31 per cent of China’s population will be above 65 by 2050.
- In Canada and the U.S., the problem is less dire but worsening by the year. By 2051, Statistics Canada projects that 25 per cent of Canada’s population will be 65 and older.
Bottom line: In the U.S., that number is closer to 23 per cent, but the country is on track to run out of money to fully pay beneficiaries by 2034 unless there’s an overhaul of the system. Raising the retirement age is an incredibly unpopular fix, but it might become a necessary one. — Sarah Bartnicka
Holding Out For CPP Benefits Might Not be Best For You
It’s age-old financial advice: wait as long as possible to start your public pension benefits, so that you can maximize your monthly payments. But that may not be the best advice for everyone. New research from the Global Risk Institute shows that for those with lower incomes, starting Canada Pension Plan (CPP) payments earlier can reduce recipients’ chances of senior poverty. The reason is simple: lower-income seniors often have shorter life expectancies, and often need access to funds sooner to manage rising living costs. The standard age to start a pension is 65. However, you can start receiving CPP payments as early as age 60 or as late as age 70. So, if someone chooses to claim their pension at 60, they face a monthly payment reduction of 0.6 per cent, totalling a hit of 36 per cent by 65. For some people, they are better off having the money sooner. If you are in a comfortable place without CPP payments, it can pay off to wait. For example, if you retire at 65 in 2024, you’d get a maximum annual CPP pension of around $16,400, compared to $23,000 if you retire at 70. — Meera Raman
Canada Heading For Quality of Life Drop
Sluggish business productivity is a growing risk to the quality of life in Canada, according to a recently released TD report.
Driving the news: Economists say flagging productivity and high population growth have left Canadians with smaller slices of the economic pie. GDP per person, which is one way economists measure how well-off people are, fell seven per cent below its long-term trend this year, or ~$4,200 per Canadian.
- Construction and goods-producing sectors have dragged down productivity, but one bright spot is the oil and gas sector, which is still highly productive.
Why it matters: By this measure, Canadians’ standard of living was lower last year than in 2014. According to the report, declining productivity affects wages, while governments can find themselves raising taxes or cutting services to keep up with spending commitments.
- Countries that have high per-person GDP, including Norway, Switzerland, and Iceland, aren’t just productive, they also consistently top quality of life rankings.
Yes, but: With interest rates coming down and Ottawa taking steps to slow population growth, the Bank of Canada does expect GDP per capita to pick up in 2025 and 2026
Bottom line: Solutions to boost productivity are often sector-specific, but TD claims a good place to start would be policies that boost competition, keep skilled workers in the country, reduce barriers to trade and investment, and improve incentives for innovation. — Lucas Arender
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