Addressing the aging workforce issue - We need to stop encouraging early retirement and push back normal retirement age to 67



    MONTREAL, June 18 /CNW Telbec/ - Ending the encouragement of early
retirement right away and gradually pushing back normal retirement age from 65
to 67 are among the measures needed to reduce the impact of aging on public
finances as well as to ease labour shortages.
    In an Economic Note published by the Montreal Economic Institute,
economist Norma Kozhaya concludes that "it is essential to start the necessary
reforms right away before demographic phenomena lead to lower economic growth
that will reduce wealth creation in Quebec."

    Some of the solutions

    A number of moves could be considered to raise the participation rate of
older people on the job market and to reduce the negative economic effects of
aging while helping maintain the viability of existing retirement plans. These
measures include:

    
    - Favouring later retirement by raising Quebec Pension Plan payments
      immediately by 0.7% per month rather than the current 0.5% for
      retirements taken after age 65 and ending encouragement of early
      retirement through an equivalent reduction rate in payments to
      beneficiaries who retire before age 65.
    - Gradually pushing back normal retirement age from 65 to 67 over the
      next 12 years. This is justified by higher life expectancy and by
      improved health among older people. This solution has been adopted in
      the United States and more recently in Germany. The United Kingdom is
      also moving toward comparable solutions.
    - Permitting private plans to introduce a penalty for currently allowable
      early retirements by means of a simple actuarial reduction starting at
      age 55.
    

    Current retirement plans penalize work

    Laws governing retirement plans and tax laws often make it pay better to
retire early rather than to keep working. According to the Chief Actuary of
Canada, the current system is unfair to people who retire later and is too
generous to those who retire early. Moreover, phased retirement measures are
seldom used in Quebec: between 1991 and 2001, only 19% of employees retired
gradually from the labour market, compared to 81% who retired completely.

    A worrying situation

    The aging of the population and the impending mass retirement of baby
boomers are already starting to create labour shortages and will soon cause
weaker growth in the economy. This will also result in lower growth of tax
revenues just as requirements and spending levels go up, especially in health
care. The situation is particularly worrying in Quebec, where people tend to
retire earlier and where labour force participation among older people is
lower than in the rest of North America. The birth rate is also lower. In
addition, the population below age 15, which will soon form the labour force,
has fallen in Quebec while increasing elsewhere. In the next 25 years, the
population aged 65 and over will double while the younger population will keep
falling in Quebec and rising elsewhere.
    Assuming that labour force participation rates remain constant, the
decline in Quebec's working population starting in 2013 may have an impact on
production. The average annual growth in real GDP per capita could be just
1.1% between 2020 and 2030, whereas it has been 1.6% in the last 25 years. The
Quebec pension board estimates that the number of beneficiaries will rise 19%
by 2011 and 90% by 2030. This rapid increase in the number of new retirees
will put pressure on pension plans.
    The Economic Note titled The Retirement Age in Quebec: A Worrying
Situation was prepared by Norma Kozhaya, an economist at the Montreal Economic
Institute. She holds a doctorate in economics from the University of Montreal
(specializing in macro-economics and public finance) and is also a lecturer in
the economics department at the same university.

    The Note is available at www.iedm.org

    The Montreal Economic Institute is an independent, non-partisan,
non-profit body that takes part in public policy debate in Quebec and across
Canada, offering wealth creation solutions on matters of taxation, regulation,
and reform of health and education systems. Its publications since 2000 have
included the Report Card on Quebec's Secondary Schools. In 2004 it won a
Templeton Freedom Award for Institute Excellence for the quality of its
management and public relations.




For further information:

For further information: and interview requests: André Valiquette,
Director of Communications, Montreal Economic Institute, (514) 273-0969, ext.
2225, Cell: (514) 574-0969, avaliquette@iedm.org


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