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Fact Sheet 

Growing Up: The Social and Economic Implicationsof an Aging Population

KEY FINDINGS

CGA-Canada is committed to making a meaningful contribution to the current debate on aging issues facing Canadians. CGA-Canada’s report includes the most comprehensive compilation of Canadian data and recommendations from demographic experts in government, private sector and not-for-profit. The key findings are presented under the four distinct headings of Health Systems Pressures, Labour Supply Concerns, Intergenerational Relationships and Social and Private Income Security Programs.

Health Systems Pressures

  • Based on Canadian Institute for Health Information (CIHI) data, Canada’s 2003 total health care expenditure reached an estimated $121 billion, which amounts to almost $4,000 per person. The private sector accounted for approximately one-third of that total.
  • The Conference Board of Canada estimates that total health care spending in Canada, adjusted for inflation, will increase to $147 billion in 2020 from $80.7 billion in 2000. This translates into an increase of approximately 83 per cent of the real health care cost over the 20 year period from 2000 to 2020.
  • In 2001, Canada spent an estimated 10 per cent of its gross domestic product (GDP) on health care according to CIHI. Canada is one of the four countries having the highest total health expenditure as a percentage of GDP.
  • Canada is within the top third of countries with respect to the ratio of public sector spending on health to total health expenditure, compared to private sector spending where Canada is in the middle range.
  • According to 2001 health data from the Organization for Economic Cooperation and Development (OECD), Canada falls within the top third of countries for public sector health funding per capita (at $1,978 U.S.). Canada is among the four countries having the highest health expenditure per capita funded by the private sector (at $814 U.S.).
  • More than 50 per cent of a person’s lifetime health care expenditures occur after the age of 65. In 2001, people 65 years of age or older comprised about 12.6 per cent of the population, yet they consumed more than 43 per cent of government spending.
  • A large share of total lifetime health care costs is incurred at the time of death, mainly as a result of expensive medical and hospital costs. Another large share of the total lifetime health care costs is incurred in the last year or two of life as a result of long-term care resulting from disability.
  • In Canada, the number of elderly people living in institutions will increase 61 per cent in the period from 2000 to 2020, as compared to 33 per cent in the U.S. and even lower inclines in European countries. The number of disabled living at home will increase 62 per cent over the same time period. It is further expected that long-term care spending will increase in Canada from 0.5 per cent of GDP in 2000 to 0.8 per cent in 2020. (Figures according to the OECD’s study on disability rates and long-term care.)
  • The Canadian health care sector is already experiencing a shortage of health care professionals as Canada’s health workforce is retiring earlier and the average age is increasing (from 39.1 years in 1994 to 40.8 years in 2000). This shortage seems more acute within the nursing profession.
  • About 12 per cent of older Canadians needing long-term care currently live in some type of long-term care facility. A 2002 Ipsos-Reid poll shows that nearly half (47 per cent) of Canadians are concerned about becoming a burden to someone when they get older. And, while one in four is concerned that they will need to care for their parents when they get older, only 12 per cent of Canadians currently have private long-term care insurance.
  • Around 2010, some 60 per cent of boomers over the age of 50 will have a surviving parent, compared to 1960 when just 16 per cent of Canadians over 50 years of age had a surviving parent.
  • Statistics Canada projects that annual deaths will increase by 40 per cent between 2002 and 2020. About 75 per cent of deaths in Canada occur in a hospital setting or long-term care facility although research shows that 90 per cent of Canadians would prefer to spend their final days at home with the availability of home support services.

Labour Supply Concerns

  • In 2001, the median age within the core workforce age group (20 to 64) was 41.3 years of age. By 2011, it is projected to rise to 43.7.
  • In Canada today, there are about 19 retirees for every 100 workers. The elderly dependency ratio is projected to rise to 39 retirees for 100 workers by 2030, and to 44 retirees for every 100 workers by 2050.
  • The ratio between people aged 60 to 64 years (those who reduce their hours of work or who leave the workforce) and those aged 20 to 24 years is now at 0.6:1.0, which means that for every six people who leave, 10 people enter the workforce. This ratio is expected to continue to rise and will equalize by around 2016. But by 2026, it is predicted that for every 13 people who leave the workforce, only 10 will enter.
  • Based on the 2002 Canadian Labour Force Survey, the average age of retirement in Canada is 61.2 years.
  • Two-thirds of Canadians retire before the full Canada Pension Plan/Quebec Pension Plan benefit age of 65, often times involuntarily.
  • Between 1987 and 1990, 29 per cent of people retired before the age of 60 years. That rate grew to 43 per cent between 1997 and 2000. Early retirement is more common in the public sector where the average retirement age in 1999 was 58.5 years, compared to 61.3 years in private sector and 65.0 years for the self-employed.
  • Generally, seniors over 65 are retired, but a small proportion, about six per cent, are still economically active. More senior men (about 10 per cent) are in the labour force compared to women (about 3.5 per cent). Overall, seniors comprise less than two per cent of the total workforce in Canada. It should be noted that more than half of these seniors are self-employed and many are employed on a part-time basis.
  • The drop in the labour force participation rate of boomers along with the smaller millennium bust cohort entering the labour force, will result in labour force growth of approximately nine per cent between 2000 and 2010 and only 0.5 per cent between 2011 and 2015. No labour force growth is expected from 2016 to 2025.
  • The education and health-care sectors are particularly at risk of losing a large share of their workforce due to low retirement ages taken in tandem with generous retirement incentives and the nature of the professions’ maturity. Other sectors experiencing shortages of skilled workers include skilled construction trades people, medical technologists and technicians, aircraft mechanics and police officers.
  • Age structure alone does not determine future skill shortages, according to research by the Canadian Policy Research Networks. Three other key factors are the length of time required to train, the geographic mobility of workers, and working conditions that make it difficult to attract or retain workers.
Intergenerational Relationships
  • Whether older generations will be an insupportable burden to younger ones depends largely on attitudes lent to it now and in the future.
  • In 2002, an average contribution of $4,523 per individual was made to an RRSP by an estimated six million Canadians.
  • As baby-boomers retire, tax-sheltered private pension schemes will generate significant government revenue from the taxation of withdrawals from those plans. As the population ages, tax-sheltered contributions (having a revenue loss effect on governments) would be expected to grow more slowly, while the taxable withdrawals will grow more quickly. This could compensate for the projected increase in public spending on health care and pension benefits.
  • There is relatively limited information available regarding intergenerational transfers that occur through inheritances and the corresponding contribution to personal and public wealth of future generations. However, it is reasonable to estimate wealth transference to heirs at a rate of approximately $13 billion per year.
  • The most recent data regarding wealth among the different age groups over the last 25 or so years reveals that those nearing retirement have experienced a significant increase of their net worth, while those under age 54 have seen it shrink.
  • Consumer spending trends in Canada over the last 20 years show a rise in spending on discretionary items and a fall in the personal savings rates, despite recent polls that show that most Canadians are worried about having enough money when they retire.
  • Twenty or more years ago, Canadian families tended to put their savings into personal deposits and fixed term investments. Today, Canadians have opted to invest in higher risk investment devices and are investing in mutual funds, stocks and other financial investments such as insurance, financial planning and wealth management services.
  • Households, in aggregate, have been extracting some of the equity in their homes for other purposes. Households have also increased their borrowing through use of credit cards and short-term loans – particularly lines of credit.
  • Public social programs have shifted over the years to now cater to all people rather than services to those living exceptional circumstances such as temporary job loss and debilitating illness or injury. This has resulted in a heightened sense of cultural privilege, one based on rights and expectations, rather than one based on personal duty and self-reliance.
  • Universality and its enjoined self-interest may well have gone astray as Canadians have pursued a doctrine of entitlement over a character of personal reciprocal obligation.
  • Considering that parents now maintain responsibility for their children well into adulthood and that the generation gaps seem to get narrower today, it is quite conceivable that the system of reciprocity that exits within families will get stronger and that the willingness and capacity of families to provide supports for older family members may not be compromised despite the fact that we have less children.

Social and Private Income Security Programs

  • While most adults, at one time or another, have thoughts and/or even concerns about retirement, very few ever actually sit down with the expectation of designing a concrete and manageable action plan.
  • In order to align economic circumstances to life goals, Canadians must make efforts to plan and reassess their financial plans without becoming obsessed or paralyzed by the process.
  • Public programs are a good deal for Canadians but intentionally serve only to support modest lifestyles.
  • Canadians may have several income and cash flow sources at retirement including government-administered sources (Canada Pension plan, Old Age Security, etc.), company pension plans, registered savings plans (Registered Retirement savings Plan, Registered Retirement Income Fund, Locked-in Retirement plans) and non-registered savings plans (Canada Savings Bonds, treasury bills, mutual funds, life insurance, etc.).

KEY RECOMMENDATIONS

To ensure a positive economic system that works with Canada’s aging population, the country requires a comprehensive framework that takes leadership in changing attitudes, policies and practices at all levels and in numerous sectors. Resulting from the findings of this study, CGA-Canada believes that there are positive actions that can be taken in the immediate future to improve outcomes. These include:

  • Establish a ‘seniors health account’ – In the spirit of building on the current pay-as-you-go health care system, governments should consider the viability of establishing a ‘seniors health account’ for the purpose of allocating new money to the provinces in proportion to the growth in their populations age 65 years and over. Under a pre-funded regime with revenues coming from current and future taxation correlated to general revenue increases, reserves can be created to help meet the future costs related to seniors’ health care.
  • Evaluate retirement age – Already recognized as an effective way to reduce potential skill shortages, Canada is well served to invert the current trend of early retirement. While some countries are considering altering the age eligibility for public pensions, it is conceivable that Canada restrict its consideration to early retirement (age 60) provisions only given its current experience. That is, given that our average retirement age is 61.2 years, it is reasonable to study those dynamics prior to potentially including those 65 and over in one broad sweep.
  • Eliminate mandatory retirement and incentives – While public pension eligibility may have important ramifications, eliminating mandatory retirement and diminution of early retirement incentives likely hold the greatest promise.
  • Adjust Canada’s Income Tax Act – Implementation of phased retirement may require reforms and adjustments to pensions and other contributions that favour full-time employment or provide financial disincentives for continuing to work after a target age. Currently, the Income Tax Act does not permit employees to simultaneously contribute to and receive benefits from an employer-sponsored pension plan. CGA-Canada believes that if phased retirement in Canada is to become a meaningful or alternative reality, the federal government must make changes to the act.
  • Reconcile public expenses with predicted revenues – CGA-Canada encourages the reconciliation of projected increases in public spending with future transferences of wealth and sources of increased government revenue resulting from current pension constructs.
  • Encourage personal financial planning – Recognizing that public or social programs are generally a good deal for individuals, Canadians should be encouraged to recognize these social programs as a reasonably modest starting point only and an essential safety net but not typically intended to serve as a panacea for fuller retirement living or more generous levels of comfort. CGA-Canada calls on all Canadians to devote time and energy to personal financial planning extending beyond the provisions of public programs.
  • Support public policy changes – Canadians must rally to promote government policy which provides a minimum standard of living to all, while meaningfully allowing Canadians to assume fuller responsibility for and great independence of their lives.
  • Educate Canadians about social income program benefits and limitations – Given the complexity of various retirement vehicles, their interrelatedness, and their potential consequence on the lives of individuals, it is imperative that Canadians gain full appreciation of the options available to them in order to safeguard their future standard of living.
  • Develop cost-benefit modeling – CGA-Canada believes that in order to ensure positive fiscal outcomes from advances in technology, Canada must introduce and objectively implement a standardized cost-benefit model of alternative assessment which captures distinctive cost interrelationships.
  • Conduct a national dialogue on dying – It is timely for Canada to open up a national dialogue on the ethical decisions around dying, as other countries have done. Palliative care in the community and advanced care directives (or living wills), have been shown to offer cost savings.
  • Invest in Canada’s aging workforce – Employers should invest in older workers to ensure a viable, skilled workforce and slow the pace of anticipated erosion or shrinking of the older aged income tax base. This investment approach creates an incentive for aging Canadians to remain actively employed and delay retirement. Without reducing the demands placed on social income programs and helping spread the burden of income taxation, these demands will otherwise fall upon Canada’s younger workers.
CGA-Canada | Last Updated: January 26, 2005