Proceedings of the Special Senate Committee on Aging
Issue 3 - Evidence, February 12, 2007
OTTAWA, Monday, February 12, 2007
The Special Senate Committee on Aging met this day at 12:38 p.m. to examine and report upon the implications of an aging society in Canada.
Senator Sharon Carstairs (Chairman) in the chair.
[English]
The Chairman: Honourable senators, we will begin to give you a report on our other senators. They will be here, but Senator Keon and Senator Chaput have been delayed for up to 40 minutes. Senator Cordy's flight has now arrived, so we are waiting for her to make it into our meeting.
We have a witness before us who has appeared before, namely, Peters Hicks, Executive Director, Strategic Analysis, Audit and Evaluation of Human Resources and Social Development Canada.
We invited Mr. Hicks back because we were interested in comments he made but he was with such a large panel, we did not have the opportunity to ask the kind of detailed questions that his thought-provoking discussion led us to want to ask him now.
I understand, Mr. Hicks, you have a policy paper to present to us and then we will begin with questions. Thank you very much, because I know you have had a short time frame to prepare for this meeting. We appreciate your being with us.
Peter Hicks, Executive Director, Strategic Analysis, Audit and Evaluation, Human Resources and Social Development Canada: It is a pleasure to be here. Short notice and all, it is a welcome opportunity.
I have studied these issues in Canada, but I have also studied them at the Organisation for Economic Co-operation and Development, OECD, as well. I have coordinated much of the OECD's work on the implications of population aging in different countries. It is an honour to be here.
I will skip through my notes. When people talk about aging studies, often two different things are being discussed. They are both important but, if they are not separated, sometimes there can be confusion. First, there is the study of individual aging, which is really about seniors; that is, what policies impact older people and seniors.
The phrase, ``population aging'' or ``aging societies,'' which is in your mandate, tends usually to be used more in the sense of the effects of the changing age structure and the size of the population. It is not so much about seniors at all but about the fiscal side: can you afford pensions and health care; what is the implication of lifelong learning and what is the implication of the aging workforce, both socially and economically. That set of discussions tends to have dominated the discussions in the past decade, obviously in anticipation of the coming retirement of the baby boomers.
Most discussions of aging have been more on population aging and less on the question of seniors and older people. Increasingly around the world, that debate is now shifting away from, can we afford to grow old — most countries have an answer to that question now — to the question of population size, below replacement fertility. That phase of the debate has not hit Canada at the national level, although it has hit Quebec and some of the provinces.
I can speak to you about population aging. I know something about life-course flexibility. When I was approached last week, I was somewhat hesitant because I cannot speak to you authoritatively on the issue of older people and seniors. There are other people in our department who run the pension scheme. Perhaps you noticed that in my last testimony before you. I relied heavily in my last testimony on everyone but myself. I do not speak for pensions. I do not speak for New Horizons for Seniors. I am not advising Senator LeBreton on her new responsibilities: others in the department are. They would be pleased to come back at the appropriate time.
I am shaping my answers to your questions from a life-course population aging perspective. I will defer on other matters because I am not the right person to talk on some of those seniors' issues.
Your first question relates to defining seniors. My basic point is that in all OECD countries there is a fundamental problem. The number of young people in school is growing. Sorry, that is wrong. The period of life people spend in school is growing, the period of retirement growing hugely, and the proportion spent in work in the centre of life is shrinking. For some time, that situation has been treated as a serious economic problem by OECD countries. It has fiscal implications but also questions related to who is producing and consuming.
Most recently, a social dimension has been added to that. People are beginning to ask why we are spending a third of our life healthy and skilled, with many but not all wanting to work longer. Why are the cards squishing work in the middle of life and is it not better to have a scheme where there is more flexibility for learning, caregiving, work and leisure than is the current case. That social dimension has been added to the economic dimension that was dominant in the 1990s.
In response to that issue, a number of countries, as your question notes, are taking steps to increase age of entitlement to retirement benefits. The Americans did that many years ago. A number of other countries have recently joined them. Sweden and other countries are taking a different approach. They are not raising the age of entitlement but adjusting the benefit to the longevity of the cohort that receives them.
I have in my notes some bullets that remind us that age of entitlement is an important issue, without question, but it is not a big issue in the sense of any changes that will get you big numbers. Most people retire well before age 65 now. The patterns of retirement in Canada for older people have been going through the roof in the last five years, independent of any change in eligibility. People adjust and adapt. If you want to remove incentives to early retirement, you do not have to do it through age. There are many other ways in pension schemes and lots of other ways you can do that.
Usually when countries have increased the age of entitlement, they have done it gradually, with lots of notice. The change is more a signalling device that we are spending many more years in retirement in good health than it is for having any direct effect. I do not say it is not important, but changing the age of entitlement, at the end of the day, has little direct effect on increasing the length of time people spend in the labour market.
Is there an alternative? I will not go into the obvious. Nothing in our biology says we should retire at age 65. There probably was something at the beginning of the last century for manual workers: people in construction and on machine lines. They could not work much beyond 65 in most cases but that rationale has largely disappeared. Similarly, on the social side, there is no obvious reason why we should leave one of the main institutions that gives meaning to our society at age 65. Some people leave for sickness and various reasons but nothing in our society or biology dictates that we must leave at age 65.
Alternatives: The committee heard a witness, Byron Spencer, who pointed out that being old has changed. Should we think of a variable age for being a senior? Can we link the notion of ``being old'' to longevity? We can for analytic purposes, but I defy anyone to come up with a sensible program they could sell that links to longevity. On an individual basis, we do not know when we will die. It is tricky to make that calculation except as a formula in a pension benefit.
Do we need an age of entitlement at all? If we had a truly clean slate, most people would say: Why not give people the full choice to work, take leisure, go to school or give care in a much more flexible way over the course of life? Why do we have a fixed age when all of that should change, seeing as individuals are diverse in terms of their preferences for work and leisure. They are diverse in terms of whether they want to work and whether there is a meaningful opportunity to work.
The trouble with forgetting about the retirement age altogether is some people now would clearly lose with that approach. There are still people who cannot find work, who are sick and who cannot work much longer: If we take out the guarantee of retirement at age 65, we want to make sure that there is a real choice in place. In the long run it is conceivable to drop age altogether and making the whole thing more flexible.
Another line of argument is: Do we want a second line? The fourth age line, often talked about as around age 75, is where there is a biological change and where people are nearing frailty and they may need extra supports to maintain their dignity and independence. A number of people have made the case for a policy dividing line. The difficulty there is that it does not happen at the same time for everyone: the age of 75 is a convenience. Frailty happens to some people at age 55 and other people at age 95. For some people who die in good health, it does not apply at all. Once we start with those dividing lines, it is difficult to know why we would have a different set of policies for people who become disabled at the end of their lives than for people who become disabled at age 65, 55 or 45. An ageist issue comes in at that level. I am making life more complicated for you without any answers.
Your second question about the diversity for seniors was, ``Does the National Framework on Aging still reflect current thinking.''
The National Framework on Aging is about seniors, about older people. On the particular issues most of you are interested in, you will have to invite other people from the department who deal with them. Let me say, you have asked a darn good question. That framework was developed in the mid-1990s, and was cast in the language in of 1999, the International Year of Older Persons. The 1990s are only a couple of years ago, but the world looks nothing like it did in the 1990s. Remember in the 1990s, hardly anyone over age 65 was working, except in a few occupations, and except for a few self-employed people. We were at the end of a 20- to 25-year stretch towards ever earlier retirement. Back in the 1990s, the health debate was, is this increasing longevity spent in good health or are we simply extending the period of bad health? That subject was a real debate in the 1990s. People thought longevity meant more time in ill-health and were not sure it was a good thing.
Hardly anyone was in the labour market. The concern was that people were retiring earlier and earlier, and health would be a big problem with respect to increasing dependency. When we look at the framework then, the words apply to everyone and they are still completely sensible today: dignity, independence, participation, fairness and security. That concern made particular sense when we thought people would not be in the labour market, so we needed to help out extra with these kinds of words. The words still apply, but they apply to a society that now looks nothing like the 1990s. The big worry in the 1990s was unemployment. Where were the jobs to work longer in? It did not make any sense. Today we are talking about labour shortages. We could not have seen in the 1990s that the trend had already turned around. Older people were working much longer. That trend changed about 1996, but we could not see it in the 1990s. We can see it now. People are working longer. Labour shortages are the flavour of the month. The research shows that most increasing longevity is spent in good health, not in bad health. There is still argument about that issue but the debate is partially over. By and large, the view is more optimistic.
You are right to ask the question. The year 2012 is when the baby boomers start retiring. We often think that phase has started now. The baby boomers reach 65 in 2012. The world in the ten years after 2012, likely will look much different from the 1990s in terms of the labour-market situation and the social situation of older people.
I think you are wise to raise the issue. I have no great wisdom to suggest what the world after 2012 might look like, except that it is a fair bet it will not look much like the 1990s. The question is: Are we sufficiently near to 2012 to come up with good answers to that question or should we park some of those questions? I do not know the answer. I think the work of your committee will be particularly helpful in our round issues like that.
The third issue the committee raised is about frameworks. What is the best intellectual framework for talking about these things? You mentioned a life-course perspective, an active aging perspective and a healthy aging perspective. The underlying serious analytical perspective is the life-course perspective. The other two are slogans. This perspective is the whole framework for looking at things.
Right now most of our policies are point-in-time. We do something for people who were poor last year. If people are seven years old, we put them in the Grade 2 curriculum, and so on. A life-course perspective runs counter to that approach. This approach says we should look at the whole of life and, particularly, how things at one stage of life make a difference at subsequent stages: early childhood into school; school system into adolescence; adolescence into the workforce; and the workforce into being a senior. Income and health as a senior are largely set. When we are middle- aged, it is largely set, though not completely, at an earlier stage.
A life-course perspective makes us analyze that and makes us favour social investment policies and preventive policies more than the interventionist policies that apply at a particular point in time later in life.
More than that, the life-course approach is much more finely grained. It forces us to look at the lives of real people. This approach supports qualitative analysis as well as quantitative analysis. It looks at the range of resources available to people, not only income but time use and shares of information — not only from government, but from a whole range of family, community and government. It deals with human capital, assets and all those kinds of things.
Everyone has always wanted to have life-course policies. It is common sense that life is a continuum. However, we have not had the tools to do that. Those tools, in the form of longitudinal surveys and new analytic techniques, are now becoming available, and we are developing life-course policy now because we can. We have not reached the stage where this change has had much impact on policy yet. It is still more a question of analysis and thinking things through. I have no doubt that as these new tools and databases come into play, policy will change, but certainly not tomorrow morning. It will take some years. By the time the baby boomers hit 2012, we will know more about how to shape finely grained policies that meet the real needs of people in that group.
``Active aging'' is slogan invented at the OECD. I invented it. Americans were using a phrase called ``productive aging,'' which did not receive much credence around the world. Europeans did not like the term, ``productive aging,'' so we coined the phrase, ``active aging.'' They mean almost the same thing. They mean we should be able to participate in all the institutions of society as we became older, including the worlds of work.
Healthy aging is about the same thing except it is slightly narrower. The determinants of health and the determinants of social well-being are almost the same, so they are related. However, with health more emphasis is on fitness, health, and those things that you would need policy for to prevent constraints on dependence, dignity and things like that.
I think perhaps active aging has run its course. Slogans come and go. We need to be careful with slogans. However, the underlying life-course kinds of analyses I think will stick and they have permanence.
Federal government role is your final question. I confess I cannot answer your question with respect to seniors and aging. I know you would like me to, and I have had the words from other parts of our department. Please invite us back. I believe you have already had discussions with Senator LeBreton. I do not know how the discussions have gone but people are eager to come back for that discussion on federal government role.
With respect to the things I can talk about — population aging and life courses — the long and the short of it is that there are always problems, but compared to almost every other country, Canada is in good shape with respect to the population aging set of issues. Our fiscal situation and pensions are good. Health care, a problem everywhere, is already receiving much attention. Canadians are flexible in their retirement patterns. More could be done and more ought to be done: There is no question of that. By and large, compared to almost everywhere else, Canada stands as a good-news story on the population aging front. Some people think that Canada has a small problem of population aging compared to Germany or Japan. We do in absolute numbers, but in terms of the rate of change, Canada is aging faster than most other countries in the world. It is not that we do not have a big challenge: it is only that we seem to be well situated to deal with that challenge of population aging, compared to many other countries.
Many of us start off a policy prescription about any subject whatsoever with ``Population is aging, therefore. . . .'' Population aging tells us that there is volume pressure — a lot more older people and a lot fewer younger people et cetera — but it is not terribly helpful in telling us what to do about it. The main prescription for an aging population is to remove disincentives to work, but we do that whether a population that is aging or not. The standard argument is to increase productivity. That is absolutely true. Of course we should do that whether the population is aging or not. The standard prescription is to make sure health care is effective and working well. That is great, and it is true, but we should do that regardless.
Population aging by itself tells us few things about what we should do but it tells us when we should do things because of these volume pressures. The work of your committee may be less interested in population aging per se, and may be more interested in the intercept between the volume pressures and some of the individual life-course things kinds of things that you are signalling an interest in. I think a difficult area where recommendations and study is particularly needed is baby boomers and what their life will be like in retirement, and combine that with the population aging. Some of the other studies, in my view, have run their course. I am not sure one more population study — and there have been excellent ones — by itself will tell us too much new. I am probably wrong. However, when you combine these various things, as the mandate of your committee allows, I think you are into something interesting.
Thank you, and I am sorry I went too long.
The Chairman: Not at all: We were interested in what you had to say.
I am particularly interested in any suggestions you might make with respect to removing the disincentive to work. What kinds of things would you suggest can be done in Canada to remove that disincentive to work, while at the same time — and I think you referred to this — protecting those people who need the programs in place, whether because of illness or incapacity of some nature?
Mr. Hicks: I will run through the standard answer to that question because I do not have any wisdom beyond the standard answer. It is a question that all OECD countries are addressing. We are by no means unique. In most other countries, the first thing they say is fix the pension scheme, because there are huge disincentives in the public pension scheme of a lot of countries. That answer does not apply here. We do not have that easy answer of fixing the public pension scheme.
There are certain things we could do in the public pension schemes. The Department of Finance put out a white paper or green paper several years ago concerning the five-year review of the Canada Pension Plan, CPP, that is currently coming to an end. It examined such questions as whether people should be allowed to work and receive a pension at the same time and whether there should be anything in taxation or pension law to prevent one from working and receiving a pension at the same time.
A number of questions have been raised about the actuarial fairness of the adjustment in the CPP. Compared to other countries, CPP is a model, a dream come true, but there may be slight incentives to retire in the earlier part of that period rather than the later part. There have been more recent concerns about the coverage of private pension plans. There is some concern that public pension plans such as the ones I have, and I expect you may as well that are private, that have a formula that reward people for retiring at the best of their last seven years or whatever, are a disincentive to carry on in their present job. People who are reasonably well educated and skilled can get around it easily; they take a job somewhere else. They become a consultant or they do something else. The problem is much bigger for people without those mobile skills.
There has been much work around older workers. Age is a dangerous thing in these discussions. What can we do to keep older workers working longer? There are labour market programs that work well. They are costly, but they work. We certainly do not reward people for not working. That was the pattern of 1980s, which most countries had gotten rid of by the 1990s and early 2000.
Often people retire earlier because they do not have the skills to continue, or they become emotionally exhausted with the job they have. Schoolteachers are an example; they do not want to look at another class of three-year olds. However, that situation happens because the school boards, the universities and teachers expected them to retire at 55. If the expectation was to retire at 65, the teacher probably would have done something at the age of 45 so that the teacher did not have to look at another classroom of three-year-olds for 20 more years. That change would involve further retraining, such as for teaching nine-year-olds, which may be less frustrating.
For people in hard physical labour, it is easy to say, retrain to do something less hard. If no jobs are available, as has been the case, that is hollow advice. However, we are now looking at a world where labour shortages are on the scene. We are still operating with the baby boomers in the population and the size of the working age population is increasing. That will not end for several more years. Once it does end, everyone expects shortages. That means more highly qualified jobs will be available. However, you do not train people for those highly qualified jobs when they are 55. That training must start earlier in life. It is not so much a question of a particular age but of putting a lifelong learning perspective on things so that people train and retrain expecting that they will have the opportunity to work if they want. The question is one of expectations; hence going back to the signalling effect.
Raising the age of entitlement to a pension will not do much. It would be more useful to think of something as a signal. One does not need to retire at age 55 or 65: there is choice. We know that when there are choices, people prefer working over not working. We need to go back to whether people like their jobs. People who hate their jobs often think there is no alternative to retirement. However, if we start probing in focus groups, we find that people would sooner work than not work. The workplace is the major social institution of our society, after the family. By and large, most people like their colleagues and enjoy time at work. They often hate their particular job by the time they are ready to retire, but part of that is a labour shortage and part of it involves expectations. The committee might want to ask how one gets at some of these underlying expectations.
We cannot do it with age cut-offs. This notion is the society for all ages one. There are other things we could do. There are technicalities around ceilings and pensions and things like that. Most countries on the private side have shifted away from defined benefit, defined contribution private pensions so, basically, the amount they contribute to a pension is what they get back. This approach is more neutral with respect to retirement incentives than most defined benefit pensions.
However, almost all OECD countries also shifted their defined benefit plans so there is a greater link between what people receive when they retire and what they actually contribute. Exactly the same thing can be done within the context of a defined benefit or a defined contribution scheme. All countries have moved in that direction over the past decade, sometimes quickly. Often the changes in the formula are so subtle they are not noticed, but they are all in the direction of removing those work disincentives that are in public pension plans.
Coverage of private pensions is a new issue. That has been steady in Canada. One would have expected private pension coverage to be extended more than it has. It has held its own. There are some issues that people raise about private pensions. For those people who do not have private pensions, it often works the opposite way; people are forced to work longer than they think they needed to, which is bad. Our object is choice. However, on average and on balance for most people, working longer is good. People with low education and low skills who go to focus groups do not see it that way at all. They think that is crazy.
It is important that we look at who we are talking about when talking about retirement ages. It is a big mistake to look at the issue at the level of an average Canadian. There is no average Canadian when it comes to this issue. There are decided groups.
Again, as you investigate, you would gain much by probing the experience of Aboriginal Canadians, who have a different demographic problem; recent immigrants; and people with high and low skills. The real answer lies in getting away from that big average Canadian and down to more finely grained analysis.
The Chairman: One can collect CPP early, but with a penalty at age 60. One can collect the average at age 65, but if one waits until age 70 one can collect an enhanced benefit. Why have we not done that with Old Age Security?
Mr. Hicks: The issue has been raised on a number of occasions. People retire now well before age 65. If one fixes that issue, one would not fix much in the way of large numbers. People have been more concerned about the low-end income scale and not giving off signals that we are trying to force people to work longer if they are at the bottom. That is my intuition, senator. The question is a perfectly legitimate one to ask. One reason it has not received much attention is because it would not change much right away, but as we look done the road, it is a perfectly legitimate question. It would likely have a more signalling effect, but we would want to ensure that recipients of the Guaranteed Income Supplement, GIS, were not hurt if we did that.
Senator Mercer: Thank you for reappearing. We appreciate it. As you can tell, we were interested in your comments the first time around.
I am cautious in these meetings and worry about someone at home watching this and thinking that we are planning how to take something away. I assure viewers that we are trying to find a way to enhance these things to ensure that they work better. We are nowhere near any solutions.
You talked about removing the disincentive to work. It seems to me that this disincentive is a problem. People reach a certain age or certain point in their life where they planned to retire, and when they arrive there they realize that maybe they are not ready to retire, but there is no incentive for them to stay.
I want to explore volunteerism and your thoughts on it. A huge number of volunteers is required in this country and around the world. Many programs capitalize on the talents of all Canadians, particularly seniors, who bring a wealth of experience and knowledge, the ability to do the job and probably the efficiency that we, as volunteers at a younger age, did not have because we did not have the experience.
Mr. Hicks: That avenue of approach is legitimate. If there is a caveat, we know from our research that, by and large, people who volunteer when they are older are people who have experienced volunteering when younger. A typical pattern is people who volunteer have always done so, and in the period after retirement, say five years, tend to volunteer more. For that reason, we see a spike in the amount of volunteering of older people. That spike usually peters out quickly, after that first period of time. People do not maintain that increase throughout their entire period of good health in retirement. Certainly, they do more.
The challenge is, that pattern is much more prevalent than people starting to volunteer when they retire. That pattern is not common. It does happen, of course. It is not a different challenge from increasing the level of volunteering throughout the whole course of life. One would need to make a big difference when people are older to have a culture of volunteering that is more widespread than it is currently. I do not have the latest figures, but I believe, going from memory, there is a downward trend in volunteering among younger age groups. If that trend continues and does not turn around, it would not speak well for volunteering catching on when people retire. That might change with advertising, stories and marketing — I do not know — but it is not as simple as some people would make it seem.
Senator Mercer: In 2010, Canada will host the winter Olympics in Vancouver-Whistler, and I have seen a recent paper about the use of volunteers, particularly older ones. The recent studies show that the percentage of volunteers considered to be seniors was as low as 2 per cent of the volunteers in Lillehammer, Norway, and as high as 33 per cent of the volunteers in Turin, Italy. There is a great opportunity in planning these events. If we sit back and wait for seniors to come forward, that will not happen. However, if we say we want 40 per cent of our volunteers for the 2010 Olympics to be seniors and we want it to be a positive experience for older Canadians as well as younger Canadians and Canadians in general, as we watch this spectacle unfold, we need to plan for the involvement of seniors or retired persons, if people can agree on what a ``senior'' is. If we plan to involve them in such events, that is how we will drive the demand for volunteers. Do you think that is accurate?
Mr. Hicks: In the worst case, it would be a wonderful signalling device. I do not have a sense of the numbers of people that would be involved in that event. The downside seems to be negligible, and the upside, together with a few other things, would be a good symbol about leading an active life. I cannot see a downside. My guess is that it would not attract large numbers of people, but that is not a problem.
Senator Mercer: I have always worked for the not-for-profit world and worked with people of all ages, but the number one reason people do not give money or volunteer is because they are not asked. If we plan to involve seniors in everything we do and ask them, we will get more volunteers.
You vaguely made reference to coverage of private pensions. What do you think about the mobility of pensions from one employer to another? I have worked for a number of employers where I had a good pension plan and then moved to another employer. Now I find myself managing my pension plan. I am not good at it, and I am sure others are in that situation. Would mobility of pensions help Canadians in general?
Mr. Hicks: I have no doubt that is the case, senator. I do not pretend to be a pension expert, but I had the benefit of going to a couple of conferences recently on this subject, so I am not speaking from personal knowledge but reported knowledge. You may wish to come back to this area.
However, at the last conference I was at, the bigger issue addressed was the unevenness of the private pension coverage to begin with. I am told that Registered Pension Plan, RPP, coverage is falling as a percentage of population. It is being replaced by an increase in Registered Retirement Savings Plan, RRSP, coverage, but between the two of them, we have unequal coverage.
For those who are covered, the other issue raised at the last conference was the cost of pensions, particularly RRSPs and mutual funds. The administrative costs in Canada are much higher than in other countries, that is a set of issues. There is the portability issue that you raised. However, I sense that the underlying concern in the last several years is the uneven coverage of any kind of RPP.
Senator Murray: Do you happen to know a ballpark figure for what percentage of the labour force is covered by either a public sector or private sector pension plan?
Mr. Hicks: Public, of course, is, if not 100 per cent, approaching 100 per cent. I apologize; I have those numbers but not with me.
Senator Murray: The concern, as you suggest, is uneven coverage. A substantial number of Canadians in the labour force are not covered by any pension plan other than CPP.
Mr. Hicks: Yes and there is the Old Age Security, OAS, and the Guaranteed Income Supplement, GIS.
Senator Murray: Senator Mercer also raised the question of portability, which has been identified as another serious problem. You probably have an idea of the percentage of those plans that are portable.
Mr. Hicks: Again, I apologize, senator. I ought to have things like that but did not bring them with me. We have the information in the department, and I will ensure that it is sent to the committee.
Senator Murray: As you say, there are potential labour shortages in our economy caused by the aging population, and of course, the problem of fewer employed people supporting a number of younger and older people. The potential labour shortage problem is a macro problem. Are there particular occupations where population aging might have an adverse effect on the availability of manpower?
Mr. Hicks: I want to make a sharp distinction between now and the next three, four or five years when the baby boomers are still working versus —
Senator Murray: We are talking about a potential labour shortage here.
Mr. Hicks: I will still speak to it, senator, because it is not well understood. Currently, at the national level, supply and demand seem to be roughly in order in Canada. There is not a big issue right now. There are huge shortages, clearly, in Alberta and British Columbia in the natural resource industry and so on, obviously. Things are more or less in balance now and part of the reason is that the baby boomers are still in the workforce.
My second point is that we have no occupational forecasts at any level of precision that extend to 2012 with any degree of reliability at all, so we are not talking here about the realm of projections: we are talking about the realm of thinking things through at the level of common sense and things like that.
It seems to me, if present trends continue, you will see likely shortages in a number of occupations, particularly around the health professions. So far there does not seem to be anything on the horizon to see how that would turn around. Most shortages we see today are large shortages in particular occupations. They are not small shortages but large ones, so it is likely they will persist up to the time when the baby boomers retire.
Employers do adjust. When employers see an occupational shortage emerging, most of them in most fields have room over a 10-year period to change the nature of the work and the nature of the workforce slowly to adapt to the supply of labour coming in. Some people argue it does not happen fast enough and if we had better information people would make those adjustments more quickly.
Sometimes people argue that all the shortages will be at the high end of the spectrum. The baby boomers who will retire in that period of time are well educated already. We do not see any huge imbalances at the general educational levels. Most of the new jobs created will be highly skilled and require a lot of education, but those are the characteristics of the people coming into the workforce, too.
There may be shortages at the bottom end as well. In the health care profession, for example, the shortage is not all neurosurgeons. It is also people who look after frail, elderly people and that kind of thing. After 2012, frankly, we are in the area of speculation. I assure you that if anyone tells you authoritatively what the occupational shortage will be, I will invite them to speak to my people who try to do these things and they will tell them 10,000 reasons why it cannot be done. Labour supply and demand adjust much faster than we sometimes think.
Senator Murray: The possibility of serious future shortages in the health professions is a serious problem, for which one assumes someone out there is planning. You say the fundamental solution therefore rests on increasing productivity of those who work, and extending the period of life in which people are active in the labour market. The largest pool of potential labour is among people who now retire in their 50s and 60s.
We all know that in some occupations the date of retirement depends on the number of years of service; after a certain number of years in service one can retire. In other occupations, a formula of years of service plus age indicates the point of retirement, and others where retirement is required at age 65.
Especially for those first two groups — those who can retire young if they put in 35 years as a member of a police force, the armed services or whatever, or those in the teaching profession, again, who can retire at a relatively young age because they have put in the required number of years plus age and met the formula — what you talk about are removing disincentives to work. There is no doubt that the first thing that comes to mind in terms of removing disincentives is to fiddle with the pension plan in such a way that retirement becomes a less attractive option.
I wonder whether one can offer positive incentives to people to continue working, starting with retraining for another, useful and profitable occupation, without fiddling with their pension plans in such a way as to remove the ``disincentive to work.''
Mr. Hicks: That is my meaning when I say that the age of entitlement of pension benefit may be interesting and useful. It is one that would not necessarily be my first choice, even if it were fixed or raised.
Senator Murray: It would not be anyone's first choice.
Mr. Hicks: The Americans gave some 20 years notice, or something like that, but they are increasing the age of entitlement by a quarter of a year every year, so it is sneaking upwards. Now the pension entitlement age is age 65 and two thirds, or something like that. It is gradual. The important thing is that not many people retire at that age, so in my view, the real impact of the numbers would not be worth upsetting the explicit contract that currently exists.
If may be worthwhile, with lots of notice, to raise the age of entitlement for people in their middle years but there are many other things. What most countries have done is not bad at all. Some countries have moved in that direction, but mainly to have stronger linkages between what people contribute and what they gain as benefits later.
That change would result in far more neutral incentives. It would tend to remove the incentives for either early or late retirement. That change has another set of problems because it tends to shift more risk to the worker. None of these things can be done in isolation. Probably the biggest single thing to make retirement incentives more neutral would be to have a strong link between benefits and contributions including, for example, people working longer and receiving a pension at the same time. All sorts of combinations are possible.
Senator Murray: Wonderful things can be done with the tax system when those people who are in charge of the tax system put their minds to it, and special treatment of retirement income could provide an incentive for people to work after retirement and collect their pensions. How radical the solution is depends on how serious the problem is. I presume some people somewhere in the government have their thinking caps on and are working on possible solutions of this kind. Is that assumption correct?
Mr. Hicks: People Not only inside government are people working on it. As I indicated, the white or green paper from the Department of Finance with respect to the CPP raised a number of these issues. There were discussions around these issues. Your own Senate report of the demographic time bomb raised some of these issues. The other committee addressed these issues last year.
I want to emphasize that these things are extremely important. It is also important to understand that without any of these changes taking place, the employment rates of older people have started to rise sharply in the past seven or eight years. Without any changes, already we are seeing a sharp change in employment rates. These changes are taking place in any event as people adjust automatically. The changes are likely much larger than anything we could effect by changing the age of entitlement to a pension benefit. That does not mean it is not important to look at these things, but that natural adjustment taking place in any event in the population is real. I do not think it is understood well enough in the public debate.
Senator Chaput: If I understand correctly, sir, you said that with regard to the aging society in Canada that Canada is good news, that there has been a natural adjustment and maybe the problem is not as big as we think. Do I understand correctly?
Mr. Hicks: I did say that, but I also said compared to almost every other OECD country, we do not seem to have a problem. I do not suggest there are no issues; there clearly are. However, compared to other countries, we are in good shape.
Senator Chaput: When we talk about retired Canadians, as we know, there are those who are fed up with their job and when they arrive at the magic number, they leave. There are also those who feel they have contributed everything they can, are ready for a change in their careers and they leave or doing something else. There are additional personal reasons why people leave their jobs, whether to travel, spend more time with their families, et cetera.
Once these people have spent a few years doing what they really want to do, many want to be part of the world again in the sense that they want to participate in society and be a part of what is happening. One place they can contribute is in the volunteer sector. As we well know, our young people have less time today than we did when we were young to take part in volunteering.
When we talk about issues that need to be fixed or how we can be proactive, can we create an incentive of some kind to ensure that retired people who want to volunteer can find something in volunteer work that will answer their needs, where they will be happy and contribute?
Some retirees do not need money, but others do. Can something be done for seniors who need a bit of money for travel expenses and that type of thing so they can continue volunteering? We see that everyday. We see many senior citizens who would like to volunteer more, but they have no transportation or they cannot afford the gas to go from point A to point B, for example.
Mr. Hicks: I want to give you a sensible answer. I hear you, and I am sure we could do that. I simply do not know that area well enough to give you an intelligent response.
I will repeat the offer. I am sure it is the kind of thing Senator LeBreton will be particularly interested in, along with the officials from my department who deal with New Horizons for Seniors and things like that. However, I will not pretend to be sufficiently wise to answer your question.
I will repeat a theme in response to a similar question from Senator Mercer earlier. It may not be only a question of building incentives to increase the amount of volunteering. A bigger worry may be that the overall amount of volunteering, with other things equal, may actually fall.
People volunteer less now in their middle years. If the trend also continues that people who volunteer when they are older tend to be people who have a history and experience with volunteering, we may face an even worse situation than you suggest in that the potential pool of volunteers may actually shrink as the baby boomers retire. Of course, I do not know that. It is risky to predict anything that will happen after the baby boomers start retiring after 2012.
If existing trends continue, there is not only the problem you mentioned but also the potential pool of interest may fall. That would suggest a whole series of things you might want to consider as a committee but I have no particular wisdom on the kind of financial incentives we might bring.
Senator Chaput: Could it be that, eventually, we would not talk about a pool of volunteers? Rather, the baby boomers who want a change from what they were doing previously would be considered as taking on another career.
Mr. Hicks: If I were asked to predict the future, I would guess things would follow that line.
My experience has been that those people who volunteer often volunteer because of their work attachment. Volunteer work is often closely related to the type of work they do. I am speaking about trade associations, Kiwanis clubs and that kind of thing.
My guess would be that one of the best things one could do is maintain a high level of volunteering as well as a high level of attachment to the labour force. That work does not necessarily need to be five days a week.
A world where people have some attachment to the labour force is likely to be the kind of world where people will also volunteer more. However, I do not know that, of course.
Senator Cordy: You mentioned earlier about defined benefit and defined contribution. We had that discussion in our household last night, with my daughter and my husband discussing the pros and cons of it.
Certainly, defined contribution is a benefit in the sense that you can work for as long as you wish without being penalized. On the other hand, it is certainly a risk to the worker. Workers take all the risk as to whether their contributions will make or lose money.
I worry sometimes although, as you said, there is a benefit that private companies are transferring to defined contribution because there is no risk for them and it is cheaper for them rather than looking at the benefit of the individual.
How do we make it easier for those who wish to continue working beyond the age of 55, 60 or 65 without making it a punitive measure for those who, for one reason or another, are finished working? They are the people who retire at the age of 55 after 35 years of work or longer, or those at 65 who have worked for 45 years.
How do we weigh these things and balance them for both groups? It is great for those who wish to continue working until age 70 or 75, but how do we prevent people who started in the workforce at age 18 or 19 and who wish to retire at the age of 65 from being penalized?
Mr. Hicks: The facetious answer is, with difficulty. That question is indeed the heart of the issue.
If one looks for one magic bullet, one will never find it. The question is one of action on a number of different fronts simultaneously. It goes back to the concern about the lack of private pension coverage, supposing private pensions are all defined contribution.
The real issue is, if one has no private pension at all, the choices of when to retire are greatly limited compared to those people who have a private pension. Therefore, there is a set of issues around private pension coverage.
I realize it is easy to say and hard to do something about, but that is why we have a Senate committee dealing with this.
The question of lifelong learning must be central. Many people who cannot work longer — and I am not talking about people with health problems but about the great majority of people who do not have health problems until much later in life — are not trained for the jobs available. They cannot continue with hard physical labour after a certain point.
The solution would be to have training in mid-career that allows them to change careers. People will not train for a new career if they think they will be forced to stop working in ten years: Why bother? It is a vicious circle of expectations.
I do not think there is any one thing that one could do. One can do a series of things in the areas of learning, pensions, private pensions and benefits. I must estimate that a lot would happen automatically. If labour shortages materialize after the baby boomers return, it will be in the employers' interest to have more flexible work. Employers will want to encourage older people to return to work; therefore, they will make the workplace more suitable for older people. That change, in turn, will bring the people in.
There is the question of education, of changing people's thinking and expectations. I can say that with a good consciousness, although it sounds like I am ignoring the problems, because Canadians are adjusting well and that is important. We are dealing with a world that will probably not require any radical blowing up of the system. People seem to be doing the right thing at the present time. It is a question of partly getting out of the way, partly changing expectations and partly looking at the real issues. There are people who are sick and disabled later in life, and we must do the right thing for those people.
That solution probably should not be age-based. In terms of health, we do not want to do something different for persons at age 65 than at age 55. Population aging does not tell you much about what you should do. The best things to do are things that make sense in any event: Do those things now and they will be there when the baby boomers retire in ten years.
Senator Cordy: A lot of people love the job they are doing but at age 60 or 65 do not want to do it full-time anymore and would like to work part-time. If a pension depends on the best five or seven years, part-time work will penalize them. Also, many people want to remain working part-time but need a pension with a part-time salary to live on. We need to look at those issues also.
Mr. Hicks: I completely agree. There is some literature on the subject and you may want to ask more expert witnesses than me to talk about the details.
Some countries had what they call partial pensions. People received a pension for two days a week and a salary for the other three days. Some of those countries dropped those schemes because they found that, to their surprise, they were an incentive to earlier retirement. It worked opposite to what they thought it would do. Other countries have reintroduced them. It is one of these things where the devil is in the detail, and they must be looked at carefully.
A number of people have claimed over the years that we should have no work barrier in our tax system. For many of us in certain positions, where it is possible, the easy answer is to quit your job and take the identical job down the street in a different pension scheme. Many of us have done that, present author speaking. They become a contractor or basically do the same thing they always did. They can step outside these pension traps.
Often the disincentive is to carry on working with your own employer, but often people tire of that employer anyway and the notion of changing things is not so bad. I am talking about people such as myself and people around this room. I am not talking about people who do not have much choice. For a lot of people, that is not a choice and that is a real issue we need to look at.
Senator Cordy: Sometimes it is easier for professionals to do consulting work than for someone who is a labourer.
How much coordination is there between the provincial and territorial governments and the federal government in terms of services for seniors?
Mr. Hicks: I will give you a one-sentence answer because it is not my field. Senator LeBreton and my other colleagues who deal with that field will be the correct persons to give you a full answer.
My quick overview is, a lot. You asked about the framework for aging. As we speak, I believe a federal-provincial task force is looking at precisely that, asking themselves the same sets of questions that you are asking here. I understand there is an elaborate and functional network of co-operation. Some of the tensions that you see on the federal-provincial side do not seem to apply here, at least to the same extent.
Part of it may be due to the fact that the Canada Pension Plan is accepted by both orders of government except by Quebec. There are a number of reasons why that part of our world seems to operate pretty smoothly.
Senator Keon: I am interested in a dimension of seniors where I think there is wiggle room. If someone goes into a deluxe retirement home, these homes are horrendously expensive. People are there for a few years, they run out of money and the family must pick up the tab. I have a friend, for example, who owns a major chunk of a retirement home. He invested heavily in a retirement home and he says he is going there when the time comes. Maybe he will own enough to pay his way.
Out of that comes an idea. Could there be some sort of co-op for seniors? Could there be some sort of organization where seniors can buy into these places while they are young and vital enough to be the management or the labour force for the place? Then, when they are old and cannot do it, they would have at least some revenues and some interest in the place so this phenomenon would not happen; they would not run out of money quickly.
Do you have any resources that could lay out such a plan and interest people in that kind of thing?
Mr. Hicks: I will take note and get back to you. I do not know the certain answer to that. Our portfolio encompasses Canada Mortgage and Housing, CMHC. I would be surprised if the combined resources of our immediate department and CMHC could not come up with some intelligent piece on what other countries are doing or what some of the past experience is. I can undertake to come back to the committee and indicate some of the possibilities.
I know that some of the Scandinavian countries are evolved in the sense of this whole question of housing and aging. I am not familiar enough to know if it encompasses that cooperative model you are talking about, but we could look into it and report back to you.
The Chairman: Thank you again, Mr. Hicks. This session has been most enjoyable and I am glad we invited you back for further elucidation on some of your points.
The committee adjourned.