plenary iii - acpm.com

Plenary III

Fast Forward to 2050:

Retirement Redefined

Speakers:

Yves Carrière, Université de Montreal

Bernard Morency, Gestion Bernard Morency

Moderator:Louis-Bernard Désilets, Normandin Beaudry

1

Demography, labour force and retirement Canada in the 21st Century

Yves Carrière

Professor

Department of Demography

Université de Montréal

15000

20000

25000

30000

35000

40000

45000

50000

55000

60000

65000

70000

1971 1981 1991 2001 2011 2020 2030 2040 2050 2060 2070 2080 2090 2100

Observed and projected population of Canada, 1971-2100

Source: Statistics Canada. Table 052-0005, Projected population, by projection scenario, age and sex, as of July 1, Canada, provinces and territories;

United Nations, World Population Prospects: The 2015 Revision

.

DEMOGRAPHY – The population is not expected to decline, but a lot of uncertainty

UN – High scenario

UN – Medium scenario

UN – Low scenario

StatCan – Medium scenario

StatCan – High scenario

StatCan – Low scenario

Thousands

-0,1

0,1

0,3

0,5

0,7

0,9

1,1

Canada United

States

United

Kingdom

Italy France Germany Japan

Average annual population growth rate among G7 countries, 2011 to 2016

DEMOGRAPHY – A population that is growing faster than in any G7 countries

Source: Statistics Canada. https://www150.statcan.gc.ca/n1/daily-quotidien/170208/cg-a001-eng.htm

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061

Distribution of the Canadian population by age group, 1971-2063

Source: Statistics Canada. Table 052-0005, Projected population, by projection scenario, age and sex, as of July 1, Canada, provinces and territories.

0-14 age group

15-64 age group

65 + age group

DEMOGRAPHY – As you all know, an ageing population

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

Proportion of the population aged 65 and over, G7 countries, 2015-2100

Source: United Nations, World Population Prospects: The 2015 Revision, Medium scenario

Germany

DEMOGRAPHY – Among the G7, not the oldest…not the youngest

United States

United Kingdom France Canada

Italy Japan

DEMOGRAPHY – The impact of extending longevity could very important

• Demographers have different views on the future trend of life expectancy and longevity.

• Some argue that life expectancy at birth will reach 100 years for the cohort born in 2000.

• Much longer life expectancy than presently projected could have a significant impact on the number and proportion of seniors, but also on the total population and the solvency of the retirement income system.

0,0

0,1

0,2

0,3

0,4

0,5

1947-1951

(2012-2016)

1957-1961

(2022-2026)

1967-1971

(2032-2036)

1977-1981

(2042-2046)

1987-1991

(2052-2056)

1997-2001

(2062-2066)

Birth cohort

Source: Carrière, Y., L. Martel, J. Légaré et J.-F. Picard (2016). « The contribution of immigration to the size and ethnocultural diversity of future cohorts of seniors”. Insights on Canadian Society

catalogue 75-006, March 9 2016, Statistics Canada, 12p.

DEMOGRAPHY – An older population, but also a much more diverse population

Projected proportion of foreign-born people, various cohorts at age 65

• Of course, demographic trends have a strong impact on the composition of the labour force.

• As the population was ageing, effective retirement age has been increasing.

• Trends affecting retirement age seem to indicate that effective retirement age will still be increasing in the near future.

FROM DEMOGRAPHY TO LABOUR FORCE AND RETIREMENT

Observed (1946 to 2010) and projected (2011 to 2031) size of the

labour force according to five scenarios, Canada

LABOUR FORCE – No labour force decline being projected for Canada

Source: Martel, L. et al. (2011). « Projected trends to 2031 for the Canadian labour force, Canadian Economic Observer, catalogue 11-010, Statistics Canada

18,5M

22,5M

20,5M

Observed (1981 to 2010) and projected (2011 to 2031) overall

participation rate according to five scenarios, Canada

LABOUR FORCE – But total labour force participation rate will decline

59,7%

67%

62,6%


Observed (1981 to 2010) and projected (2011 to 2031) percentage of labour

force aged 55 years and over according to five scenarios, Canada

LABOUR FORCE – …and the work force will be older

10%

17%

24%


– The increase in the number of non retirees at a given age is the result of changing behaviours

towards retirement, but also of lower mortality, more so among men than among women.

1987

1977

2007

1997

2014

1987

1977

2007

1997

2014

Number of non retirees at each age, by gender, Canada 1977-2014

(conditional to be working at age 50; includes voluntary and involuntary retirements)

RETIREMENT – Behaviours have changed dramatically

Source: Special tabulations from Statistics Canada using Labour Force Survey; Projections from the authors

Effective retirement age for 1927-1949 cohorts, by gender, Canada

60

61

62

63

64

65

66

67

68

1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966

Reaching age 65 in…

Age

Men

(1992)

RETIREMENT – The result is a significant increase in effective retirement age


(2013) (2031)

Women

Can we expect continuing trend towards later

retirement?

0%

10%

20%

30%

40%

50%

25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

1927-31 1937-41

1947-51

1952-56

1957-61

1967-71

Proportion of men declaring deductions for RPP contributions by age and cohort, Canada

Age group

Source: Carrière, Y., J. Légaré et J. Purenne (2016). " Vivre et travailler plus longtemps au Canada : la réalité des baby-boomers ", Cahiers québécois de démographie,

vol.44, no.2, pp. 251-278.

Lower private pension plan coverage

RETIREMENT – Can we expect continuing trend towards later retirement? (1)

0%

10%

20%

30%

40%

50%

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69

1937-41

1947-51 1952-56

1957-61

1967-71

1962-66

Age group

Proportion of Canadians declaring having contributed to an RRSP by age and cohort


Increasing proportion of contributors to RRSPs


vol.44, no.2, pp. 251-278.

0

5

10

15

20

25

30

35

40

45

50

30-34 35-39 40-44

1952-56 1957-61 1962-66 1967-71 1972-76 1977-81

- Excludes Canadians withdrawing a portion of their RRSPs under the Home Buyers’ Program and the Lifelong

Learning Plan and reimbursing as expected.

Number of Canadians withdrawing money from RRSPs for 100 Canadians contributing to an

RRSP, by age and cohort


Saving in an RRSP does not necessarily means saving for retirement

Age group


vol.44, no.2, pp. 251-278.

13

35

13

41

14

38


Other trends to consider

• Delayed early life transitions

• Increasing debt load

• Labour shortages

• Decreasing replacement rate from public pensions

• Increasing life expectancy

• Increasing proportion of immigrants within the labour force

Projections of effective retirement age for 1950-1966 cohorts, by gender, Canada

60

61

62

63

64

65

66

67

68

1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966

(2013) Reaching age 65 in…

Age

Women

Men

(1992)

Projections

(2031)

Constant rates

Constant rates

Continuing trend

Continuing trend

RETIREMENT – We can probably expect an increase in effective retirement age


14

15

16

17

18

19

20

21

22

23

24

25

26

1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966

Reaching age 65 in…

Years

Women

Men

Projections

RETIREMENT – And a relatively stable period of retirement

Projections of expected number of years in retirement for cohorts 1950-1966,

by gender, Canada

Constant rates

Constant rates

Continuing trend

Continuing trend

(2013) (1992) (2031)


0,45

0,50

0,55

0,60

0,65

0,70

1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966

(2016) Reaching age 65 in…

Women

Men

(1992)

Projections

(2031)

Projections of expected years in retirement as a proportion of life expectancy at age 50 for

cohorts 1950-1966, by gender, Canada

RETIREMENT – Resulting in a decreasing proportion of life in retirement from age 50

Constant rates

Constant rates

Continuing trend

Continuing trend


• What if technology renders many occupations obsolete?

• Some predict a sharp rise in unemployment:

“When you add all of that up, some think 50 percent unemployment is optimistic.

Software entrepreneur Martin Ford predicts something closer to 75 percent

unemployment by the end of the century. "The vast majority of people do routine

work," Ford says. "The human economy has always demanded routine work." And

eventually, that work won't be done by humans.” (Max Nisen, Business Insider,

January 2013)

• But we have heard similar discourse in the past…which does not mean they will be wrong again!

• And what if there is 100 million Canadians in 2100 (Doug Saunders) and if life expectancy reaches 150 years?

STILL, A LOT OF UNCERTAINTY

THANK YOU!

25

What will retirement look like in 2050?

Bernard Morency

Senior Fellow CD Howe and Global Risk Institute

Adjunct Professor HEC, Montréal

26

Some key findings from Yves’ presentation

• A growing, aging and more diverse Canadian population

• 36 M people, with a median age of 40.6

• 46 M people in 2050, with a median age of around 44

• 70%-80% of growth will come from immigration

• We live longer and retire later

• Number of years spent into “full retirement” is relatively stable

• An older working population

• Life expectancy will continue to increase, and so will the trend towards later retirement

• Fewer people contribute to an employer-sponsored Registered Pension Plan

• More people contribute to an RRSP, but funds are also used for many other purposes than retirement

27

What will retirement look like in 2050?

• Wide range of views

• It’s all about flexibility!

• Will the concept of retirement as we know it still exist?

28

A thriving retirement system…

• Designed in the mid-60s by the parents of the Baby-Boomers

• Mostly paid for by the Baby-Boomers

• Not that expensive at first:

• short life expectancy after age 65

• a lot more paying Boomers than parents receiving a pension

• Boomers copied the idea and improved the system

• Worked reasonably well until the turn of the century

• even if people retired much earlier than age 65 and lived longer than expected

• Why? Financial and Real Estate markets did great

• Benefit improvements and contribution holidays

• Increased contributions to C/QPP

• Without equivalent benefit increases

29

… but employers began to question: why provide lifelong guarantees?

• Huge gap between private and public sector employer pension plans

• private sector: less than 10% of workers with a DB pension plan

• public sector: over 80% of workers with a DB pension plan

• More reliance on individuals to ensure a sufficient retirement income

• how do we help them save enough and manage their savings while working and, just as importantly, after they’ve stop working?

• These challenges led to two decisions:

• Leave eligibility age for OAS and GIS at 65

• C/QPP improved on a go-forward basis starting in 2019

30

Income replacement ratios from Public Plans at 65

• Single person with no other retirement income who asks for C/QPP at age 65

50% of YMPE 100% of YMPE 150% of YMPE

Today 71% 41% 27%

2065 with no change 48% 32% 22%

2065 with changes 53% 41% 30%

Source: Retraite Quebec

The improvement to the C/QPP will not do much to improve the situation of middle-class people, not in the near future… and not 40 years from now.

31

The bulk of the aging will happen between now and 2035

Age

Distribution of the Canadian population

2016 2035 2050

Below 20 21% 21% 21%

20 – 64 62% 55% 54%

65+ 17% 24% 25%

Source: 2016 census of population

32

In the 2030s, Millennials will be the largest segment of the population

Generation

2016 2036

Number(in M)

Age Number(in M)

Age

Pre Baby Boomers 4.0 70+ 0.6 90+

Baby Boomers 9.6 50-69 7.4 70-89

Generation X 6.9 35-49 7.2 55-69

Millennials (Generation Y) 8.9 15-34 11.0 35-54

Digitals and Alpha 5.8 0-14 7.6 20-34

The next Generation - - 9.1 0-19

Total 35.2 42.9

Source: 2016 census of population

33

What retirement will look like will depend on what work will look like

• Two forces at play: Automation and Aging

• major impact of technology and AI on work environment and people’s career by 2030-2035

• will have to find a way to keep people at work longer than now

• The keys to success:

• adaptability of the work force and of the employers policies and practices

• a welfare system to look after those who will be left behind

• Multiple sequential careers but also multiple parallel careers

• Continuing trend towards self-employment and contract work

Why would people want to tie their savings to one goal, far in the future, something people used to call: retirement?

34

A more level playing field and a built-in transition

• People age 65+ have:

• guaranteed minimum income through OAS and GIS

• access to better health and medical coverage than people under 65

• A new Guaranteed Minimum Income (GMI) from age 60, increasing every year until age 75

• At age 75, GMI combined with C/QPP will deliver:

• 80% of income for people earning 50% of the YMPE

• 60% of income for those earning 150% of the YMPE

• Personal savings needed for a full retirement before age 75

• people likely to gradually transition from full time work to full time retirement

35

A few other thoughts

• AI will solve the financial literacy challenge for us

• Medical assistance in dying will be as accessible in Canada as it is in Switzerland today

• Our system will encourage saving for financial security not saving for retirement

• Much more flexibility on use of the money set aside for financial security

• Employers will welcome older workers

• Public sector plans will be fully integrated with the GMI and C/QPP and have more risk sharing

• Retirement benefits from C/QPP will be further increased but ancillary ones won’t

36

Will Supplementary C/QPP reserves be used to pay for improved benefits?

Base C/QPP Supplementary C/QPP

Reserve(in B$)

Annual payouts(in B$)

Reserve as multiple

Reserve(in B$)

Annual payouts(in B$)

Reserve as multiple

2017 377 60 6.3X N/A N/A N/A

2030 710 113 6.3X 246 2.7 91X

2035 880 139 6.3X 469 6.5 72X

2050 1,690 246 6.9X 1,669 39.7 42X

Source: CPP and QPP actuarial reports

37

Thank you!

plenary iii - acpm.com

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