December 21, 2011

CANADA: What Retirement? Work longer, save more money

TORONTO, Ontario / Financial Post / Opinion / December 21, 2011

Recent changes have made quitting early less attractive

Jonathan Chevreau
Financial Post ·

Now that mandatory retirement has all but vanished from Canada, the spectre of senior poverty should recede even further.

Following Royal Assent of the Budget Implementation Bill last week, the section of the Canadian Human Rights Act that permitted mandatory retirement for federally regulated employees was repealed as of December 2012. Most provinces had already ended the practice.

Apart from the mental and social benefits of remaining at work, retiring later should be a big financial boost - both for individuals and Ottawa, which encouraged Canadians to work a little longer through recent tweaks to the Canada Pension Plan. Those waiting until age 70 to draw CPP benefits get 42% more than if they commenced at the traditional retirement age of 65, and almost twice what they would get drawing it early at 60.
Given rising longevity, more attention to fitness and health and low savings levels, all but those with low life expectancies would be well advised to stay in harness a few extra years. The longer one earns income (albeit taxable), the less need to draw down savings. RRSPs, defined-contribution pensions (and soon the new PRPPs) grow more as markets rise over time. A given amount buys more pension if one retires later because of shorter life expectancy, says Fred Vettese, chief actuary at Toronto-based Morneau Shepell.
The CPP changes and end of mandatory retirement are both positive developments, says Malcolm Hamilton, partner at Toronto-based Mercer. Those who wish to keep working can now do so without thwarting those who want to retire before 65. "Those who retire later receive an appropriate pension increase, as they should."
As usual, those with defined-benefit employer pensions are in a different situation. They have less incentive to keep working past 65, since most DB pensions encourage members to retire by 65 and will continue to, Mr. Hamilton says. Even so, all provinces require employees in DB pensions who keep working after 65 to continue accruing pension on the same basis as before 65, Mr. Vettese says. Quebec and Newfoundland explicitly require actuarial increases in DB pension if it starts after 65.
CARP, which represents Canadians 50 or older, endorses other CPP changes that let workers draw benefits while continuing to work and make further contributions. CARP vice-president of advocacy Susan Eng says this lets workers retire gradually or change careers. In 2009, a provision ended that required workers to quit work or severely reduced wages for at least two months if they wanted to draw CPP but later resume working. Another change requires those who took early CPP at 60 but then opted to resume work to make mandatory contributions until 65, thereby boosting ultimate benefits. After 65, this is optional.
While Canadians can now work as long as they wish, most still retire voluntarily before age 65. Mr. Hamilton doesn't expect these changes to alter behavior in the short term, pointing to the experience in Quebec. It ended mandatory retirement in 1982, "but Quebecers continued to retire earlier than Canadians in many of the provinces where mandatory retirement was in effect."
Manitoba also eliminated mandatory retirement in 1982 and other provinces followed suit more recently. Ontario amended its Human Rights Code in December 2006, followed by British Columbia, Saskatchewan and Newfoundland in 2007 and Alberta and Nova Scotia in 2009, Ms. Eng says.
In 1973, New Brunswick became the first province to prohibit age discrimination without an age cap, thus prohibiting mandatory retirement for those older than 65. But it also created an exemption permitting mandatory retirement if contained in a bona fide pension plan. "They removed the general exemption for mandatory retirement but kept [or introduced] the exception for pension plans," Ms. Eng says, "They're the only province to have it, which must be embarrassing for them."
There are exceptions for certain occupations in some provinces, but most civil servants are covered by the provincial changes, Ms. Eng says. To those can now be added 800,000 workers in federally regulated industries such as railways, broadcasting, mining, interprovincial trucking and airline pilots. Once in effect a year from now, they can work as long as they they're able. Specialized cases like airline pilots will no longer be compelled to retire at the relatively early stipulated age of 60.
While the feds have joined the 21st century, Ontario stepped backwards just before the recent election. Bill 181 set the mandatory retirement age for firefighters at 60, although collective agreements can make it later. Ms. Eng says the bill's constitutionality may be challenged as offending the Charter of Rights and Freedoms, just as airline pilots have challenged it successfully.
© 2011 National Post
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