The plan by the Ontario government to reduce the wages of professors at age 71 illustrates the dramatic changes in the relationship between work, retirement, and pensions.
Until recently, the expectation was that most Canadians would stop working between age 60 and 65 and then begin collecting a pension, including from the Canada Pension Plan (CPP) and Old Age Security (OAS). In other words, you worked, retired by 65 at the latest, and then received pension income.
However, in the past two decades the formerly sequential relationship between work, retirement, and pensions unraveled.
The family life of Canadians became varied and complex: later marriage, divorce, re-marriage, and blended families became common-place and normalized. Work changed as well, with fewer manual occupations and more emphasis on soft skills. Education is different: more years at school, later graduation, and the likelihood of returning to school for upgrading later in life. Lastly, technology has impacted the life cycle of Canadians: later childbirth and increased longevity.
Governments have struggled to respond to the revolution in the lives of Canadians. Only recently has the federal government finally abandoned the work cessation test in the CPP so that a retirement pension can be paid to someone still working after age 60.
Not long ago, the federal government reformed laws that in some cases permit members of a pension plan to make contributions and receive payments at the same time. Finally, Ottawa enabled Canadians to delay the receipt of OAS payments to age 70 from the previous age 65, with higher payments at the later age.
As importantly, all provincial governments eliminated laws that forced employees to retire at age 65 regardless of their productivity and desire to continue working.
The result is a retirement buffet for most Canadians, rather than the former à la carte. An employee can receive CPP retirement benefits while at the same time paying into the CPP so as to receive higher payments in the future. This same employee can also receive a retirement pension from her employer, while being employed and paying into the same pension plan. Lastly, this same employee, if age 65 or higher, can receive OAS payments.
The only rule that remains from the former retirement regime is that by age 71 pensions must begin from all pension sources, including employer pensions and registered retirement savings plans.
At present, all Canadians when reaching age 71, whether employed or not, must receive the pension income to which they are eligible. This is the situation that the Ontario government finds offensive, in that professors are seen to be “double dipping” by earning employment income and receiving their pension.
When nearly everyone retired before 65 and began collecting a pension by that age, a rule that by 71 pension must be paid made sense. However, setting an arbitrary age at which Canadians must receive pensions is based on an outdated assumption. Namely, that if older Canadians are given the freedom to decide when to start their pensions they might choose not to do so at all.
The federal government believes that older people would purposefully refuse or delay pensions in order to take unfair advantage of income-tested benefits to which they would not be eligible if they were receiving pension income. This is clearly not the case for the vast majority of Canadians, and attempts to do so would easily be prevented by minor updates to eligibility criteria for programs and benefits, and tax regulations.
Less than three decades ago the Supreme Court of Canada described mandatory retirement at age 65 as “part of the very fabric of the organization of the labour market in this country”. Just over a decade later politicians of all stripes struck it from the books as obsolete and not in keeping with the needs of employers and the life cycle of Canadians.
The archaic regulation that mandates the receipt of all pensions at age 71 should follow mandatory retirement at age 65 to the ash heap of history. Surely if Canadians can choose when to retire, they can also decide when to start drawing their pensions.
Thomas Klassen is a professor of public policy at York University in Toronto. He is author of Retirement in Canada published by Oxford University Press. Email: tklassen@yorku.ca
