Research belies PM’s warning about OAS
Expert advice commissioned by the federal government contradicts Stephen Harper’s warnings that Canada can’t afford the looming bill for Old Age Security payments.
The Prime Minister and his ministers forcefully defended their surprise plans to review OAS on Monday, as the year’s first sitting of Parliament exploded with accusations from the opposition that the Conservatives misled Canadians during the 2011 federal election.
Mr. Harper held his ground, insisting Canada’s aging population means Ottawa must change the rules for future seniors to ensure it has the long-term cash to cut a growing number of monthly cheques. The Prime Minister’s decision to signal his planned pension changes while in Europe last week was partly to remind Canadians of the deep problems European governments are facing because of social programs they can’t afford.
But research prepared at Ottawa’s request argues Canada’s pension system is in far better shape than the Europeans’, and there’s no need to raise the retirement age. Edward Whitehouse – who researches pension policy on behalf of the Organization for Economic Co-operation and Development and the World Bank – was asked by Ottawa to study and report (external - login to view)
on how Canada stacks up internationally when it comes to pensions.
His conclusion: “The analysis suggests that Canada does not face major challenges of financial sustainability with its public pension schemes,” and “there is no pressing financial or fiscal need to increase pension ages in the foreseeable future.”
While other OECD countries face big pension problems, the report predicts Canada will do just fine as the baby boomers retire. That’s because, as Canada heads into the boomer crunch, it spends far less than the OECD average on public pensions. Further, Canada’s relatively high levels of immigration will partially offset the distortions of an aging population, and Canadians tend to save more independently through RRSPs and workplace pensions than Europeans.
The report is one of six that fed into a larger summary paper written by the University of Calgary’s Jack Mintz that reported to federal and provincial finance ministers at a December, 2009, meeting. While this supporting research was overshadowed at the time, it stands in sharp contrast to forceful warnings now coming from the Conservative government.
Mr. Harper repeated his view Monday that Canada’s aging population threatens social programs. “Everybody understands that there are demographic realities that do threaten the viability of these programs over the longer term, and we will make sure that these programs are funded and viable for the future generations that will need them,” he told the House of Commons.
A spokesperson for Human Resources Minister Diane Finley responded to questions about Mr. Whitehouse’s report by pointing to the latest actuary report on the OAS, which stated the cost of the program will nearly triple by 2030.
Ministers refused to provide details of the proposed changes and would only say that current recipients of OAS will not be affected.
The government’s claims leave experts baffled. Thomas Klassen, a York University political science professor who co-authored a 2010 report on Canada’s pension system, said his own research concluded that the OAS program is sustainable.
“I haven’t heard any academic argue that there’s a crisis with OAS, which is why I was surprised a few days ago when the Prime Minister seemed to say there was a crisis,” he said. “Because I don’t know where that came from.”
Prof. Klassen said he suspects the federal government has concluded that reducing OAS costs is an easy way to save money over the long term because it can be done unilaterally without negotiating with the provinces or public-sector unions. “It’s okay to look at Old Age Security pension payments,” he said, “but I think there’s got to be a lot more evidence that there’s a problem, and I don’t see that evidence.”
Kevin Milligan, a University of British Columbia economics professor who co-authored another of the supporting research papers prepared for Ottawa, is also of the view that there is no OAS crisis. He says the government’s use of statistics showing the cost of OAS will climb from $36.5-billion in 2010 to $108-billion in 2030 is not very meaningful because of the impact of inflation. He notes the rise is less alarming when measured as a percentage of economic growth.
“As an economist, I would never characterize things in terms of nominal dollars in the future because it’s hard to put those in context,” he said. “I don’t know what we’ll be paying for a litre of milk then.”
When the House of Commons finance committee studied pension issues in 2010, Mr. Whitehouse appeared as a witness and discussed his research.
“Canada's pension system is looking good on the measures of adequacy. It is also looking good on measures of financial sustainability,” Mr. Whitehouse told MPs. “Canada does not face the same financial sustainability problems as many other OECD member countries do, particularly in Europe and among the East Asian countries, Japan and Korea, whose populations are aging most rapidly.”
At the end of its study, the committee’s final report did not recommend raising the age of eligibility for OAS or reducing benefits. However, a minority report by the committee’s Conservative MPs said payment rates for the OAS and the Guaranteed Income Supplement for seniors should be reviewed.
Research belies PM's warning about OAS - The Globe and Mail
Citing ‘enthusiastic support,’ Tories move to cap pension bill debate
The Conservative government moved Tuesday to limit debate on a pension reform bill that will create new Pooled Retirement Pension Plans.
Government House Leader Peter Van Loan argued the move to invoke a process called “time allocation” was justified because the Conservatives won the last election by campaigning on the need for PRPPs.
He said there is “enthusiastic support” for this new pension option, yet the opposition is focused on delay tactics.
“Why are they so determined to keep Canadians from having that option?” he argued in a special half-hour debate triggered by the motion. “It [time allocation] allows for debate to continue but it ensures we will actually make decisions.”
Mr. Van Loan made the accusations of delay in spite of the fact that the government only opened debate on the bill for the first time Monday.
The opposition NDP and Liberals attacked the move as “a disgrace,” arguing that it marks the 13th time the majority Conservative government has limited debate through time allocation or closure motions.
With the bells calling MPs to vote on the motion, NDP MP Chris Charlton held a hurried news conference to announce that – as opposition whip – she would be refusing to perform her ceremonial duties of walking down the aisle with Mr. Van Loan to kick off the vote as a form of protest.
She said it was “absolutely ridiculous” for the government to move time allocation after one day of debate. Ms. Charlton claimed the move is connected to controversy over Mr. Harper’s speech last week in which he signalled changes were coming to Old Age Security.
“The government has failed Canadian seniors and is now talking about gutting OAS,” she said.
Liberal MP Judy Sgro argued that opposition MPs were also elected and have a right to debate pension reform.
“We were elected and our job is democracy,” she said. “It’s a slap in the face to every Canadian.”
The government motion would limit second reading debate to two more days before a vote would take place to send the bill to committee. It would then be debated at committee, and then again in the House of Commons at report stage and third reading. If passed by the House, the legislation would be debated again in the Senate.
The debate over PRPPs comes as pension reform has suddenly jumped to the top of the political agenda in Ottawa. Prime Minister Stephen Harper surprised many last week by signalling changes are needed to Old Age Security to ensure that it is sustainable.
The federal government has been studying all aspects of Canada’s pension and retirement savings options for several years now. Some of that research noted that many middle-income Canadians are not saving enough to maintain their current standard of living in retirement.
The government argues that PRPPs will help address this by targeting employees of small businesses that do not currently offer workplace pensions. These small businesses would auto-enroll new hires into the system, though workers would have the right to opt out. Federal rules would not force employers to contribute to their workforce PRPPs, though provinces could make such contributions mandatory.
The contributions to PRPPs would be managed by the private sector at “low cost,” but the legislation does not define what low cost will mean in practice.
Citing "enthusiastic support," Tories move to cap pension bill debate - The Globe and Mail