Harper and pensions: the choices you make

Paul Wells on how this could have been an issue in any of the last six federal elections


“There are tough, important choices that must be made,” Stephen Harper wrote to his caucus 16 days ago. All righty then. Let’s talk about choices and Old Age Security. One thing I’m going to resist doing is handing out white hats and black hats. There are fewer heroes and villains in this story than, well, choices.

Here (.pdf) is the Ninth Actuarial Report on the Old Age Security Program As At 31 December 2009, tabled before Parliament three months ago. The government says it took a look at that report and had a fright. “Demographic changes will have a major impact on the ratio of workers to retirees,” it says, with the result that “Total annual expenditures are projected to increase… from $36.5 billion in 2010 to… $108 billion by 2030.”

Out went the talking points. The cost of the program will triple! Something must be done! They were more reticent about the next paragraph, which says cost of the program as a fraction of GDP is projected to rise from 2.3% in 2010 to 3.1% in 2030, before declining after that. So 2030 will indeed be a high-water mark in the entire history of the OAS program’s cost, but it’s not really a tripling because everything, including our ability to pay, will have increased in the meantime.

Still, big bump up. Point taken. But then there’s this. Here’s (.pdf) the Second Actuarial Report on the Old Age Security Program As At 31 December 1991, tabled in Parliament on Feb. 7, 1994 — about the time a 34-year-old rookie Reform MP named Stephen Harper would have been getting used to his new job. That report said the total annual cost of OAS would grow from $34 billion in 2010 (it’s in the chart on page 4) to $119 billion in 2030. An even bigger increase than the one projected by the most recent report, but pretty much the same scale. And indeed, on Page 3, that actuary 19 years ago picked 2030 as the peak date for the cost of the OAS program.

Demographics doesn’t change radically from year to year. So anyone reading the 2nd, 3rd, 4th, 5th, 6th, 7th or 8th Actuarial Reports on the Old Age Security Program would have seen the same trend lines that the government says spurred it to action now. Never mind last May’s election — this could have been an issue in any of the last six federal elections. (As we’ll see, and as many of you already know, it sort of was, once early on.) There quite literally could not possibly have been more warning.

So that’s one thing.

Then there’s this. Here’s Chart 2 from Page 21 of the most recent report.

What it tells us (Table 9 is more precise but less pretty to look at) is that the most expensive year to run OAS since the program was founded was 1993 — the year Stephen Harper was elected to Parliament. Not a surprise. We were barely out of the early-90s recession. Unemployment was stubbornly way higher than today. Even with the famous demographic changes underway, we won’t see OAS put a heavier load on the fisc until 2020.

Then the cost of the program, as a fraction of GDP, drifts gently downward as times get better, until it reaches a local bottom in 2006-2008. What a bargain OAS was in 2008! Its cost-to-GDP was the lowest it had been since 1970. In 2008 dollars, the gap between having a 2003-sized OAS to pay for and a 2008-sized OAS is about $9.4 billion.

So Harper should have put $9.4 billion aside for a rainy day? No, because that money was gone. It paid for a bunch of things the Liberals did along the way, and then helped pay for Conservative policies like cheques for parents of small children, tool-belt tax credits and 2 points of GST cuts. After things turned nasty at the end of 2008, still more money went into infrastructure projects all over the place.

So to be in a position to afford OAS in 18 years, you can make OAS less expensive; or you can take money away from places it’s already being spent; or you can raise taxes. Politicians will call one another names for making different choices. I get to point out, for instance, when the Liberal MP Judy Sgro says the government wants to “pickpocket seniors” by eventually making it harder to get OAS, that Sgro’s man for the Liberal leadership was Paul Martin and that Martin nearly resigned from cabinet when Jean Chrétien blocked his own plan to make comparable changes to the same program for the same reasons in 1995.

As for Harper and some colleagues, they have consistently made their own choices clear. In Davos, Harper said, “Fortunately, the centerpiece of [the pension] system, the Canada Pension Plan, is fully funded, actuarially sound and does not need to be changed.” It is to laugh. The CPP became fully funded after Paul Martin and his provincial colleagues, including the Alberta Conservative Jim Dinning, agreed to substantially increase CPP premiums over several years. The Canadian Alliance and its finance critic Jason Kenney fought those increases, long after the decision was made, tooth and freaking nail.

When Jim Flaherty proposed further premium increases for an expanded CPP 18 months ago, Alberta finance minister Ted Morton said boo and Harper dropped the idea posthaste.

So the Harper Conservatives’ choices are clear and consistent: resist paying more into a program when you can take something out of the program instead. They should explain why they would do the taking-out now, in the absence of a crisis or even of new information. Their opponents should explain what they would cut or tax to afford the extra billions they would need for OAS.


Harper and pensions: the choices you make

  1. Good article.  I only wished you’d managed to somehow include that statistic which fudges, life expectancy now vs then and life expectancy AT 65 now vs. then. 

    • Life expectancy IS a fundamentla and integral part of all actuarial reports.  The issues you point to ARE considered in the reports. 

      • Yeah.  I know.  They’re just not in the talking points!

    • Prior to 1990, the census bureau used the age of death gathered from “all deceased”, in a given year life, in order to arrive at an average…..After 1990 only deaths for those 60 and over were recorded for use in coming to an average for life expectancy…..As a result, the present age expectation figure is not very accurate and will show that people are living longer….The real truth is that we do not really know if people after 1990 are actually living longer than the people prior to 1990….Personally, I doubt that there is much if any difference because we know that cancer deaths are increasing every year but their are drugs which are keeping less sickly individuals alive.   

  2. http://www.ottawacitizen.com/opinion/Harper+right+idea+wrong+message/6074844/story.html

    Dan makes some of the same points and a few more besides. I’m even beginning to see the logic of pushing the retirement age[ and threshold for OAS eligibility] back a few years. The problem has to be the folks on the low end of the scale; the ones who perhaps aren’t even adequately covered by cpp – there must be a few of them? Folks who will likely suffer more than most at having OAS pushed back. And when you consider that most Canadians aren’t anywhere near maxing out the RRSP limits there seems to be room for a sensible compromise. 
    A for what the opponents should tax or cut back it seems reasonable to me to claw back OAS benefits at a lower threshold for some of the 3/4 of us who wont miss it.

    • somebody is going to suffer from cuts or decreased funding.  it is the part of the job that PM’s hate to do but they have to. 

    • Great link.

      Did you used to go by the handle of Sisyphus by any chance?

      • Busted !

        • Hey…glad to see you’re still kicking and fighting the good fight brother. :)

  3. It is about time that some journalist pointed out that the tax breaks the Harper government gave to corporations and wealthier Canadians via the GST would easily fund the short term hump in the OAS costs Paul Wells has shown us.  These tax breaks were sold to us under the pretense that they would create jobs.  In fact they did more to help corporations accumulate over $300 billion in cash reserves and had little impact on job creation. 

    There is a lot of evidence that the deficits Canadians are seeing now, were purposely created or enlarged by the Harper so they can use reducing the deficits as cover for their ideologically driven determination to destroy Canada’s social programs.  . 

    • The recession would have been deeper and longer without the tax cuts. We would have had to spend more on stimulus, and the slower recovery would have resulted in lower revenues. And many more jobs would have been lost.

      And what corporations do with their money isn’t really any of your business, unless you’re a shareholder. Any cash reserves that corporations are sitting on will eventually either be invested, or paid out to shareholders. I don’t see that being a bad thing, and I don’t see why they shouldn’t be able to make those decisions on their own timelines.

      • “And what corporations do with their money isn’t really any of your business, unless you’re a shareholder.”

        I have little doubt he is one of the vast majority of Canadians who is, i.e. he has a pension plan or RRSP or RESP or just plain old investments.  We know where it will be a cold day when the likes of Sunshine_Coaster demand the investment board of their union’s pension plan divest said plans of all corporations holding any of that $300M in cash reserves. 

      • So, tax cuts (public policy) which result in fat cash reserves for corporations is none of our business?

        • It ‘s how conservatives like him like to think – the profit’s his the public debt is yours and mine.

        • Obviously tax cuts are public policy, and thus “our business”. But tax policy has been debated during elections for years. The public has clearly indicated a desire for lower taxes, as opposed to Liberal tax-and-spend policies.

          • Gee, that list of things people “clearly indicated” a support for just keeps growing doesn’t it?

            What if I was only voting in favour of their crime policy? I guess I get lumped in with the anti-tax folks too? Extend that example as you will.

            The Harper government also claimed that these tax cuts would spur job creation. What happens if it doesn’t? Taxes go back up? No?

            Honestly, you can’t make policy decisions like this. If they’re not based on fact and reasonable debate, then they’re based on nothing intelligent.

            Where’s that debate?

      • “The recession would have been deeper and longer without the tax cuts. We would have had to spend more on stimulus, and the slower recovery would have resulted in lower revenues. And many more jobs would have been lost”

        I very much doubt you can produce any evidence for that opinion. Even conservative economists like SG make no bones about the fact that cutting the GST was a dumb move and has likely set up a structural defict that it is beginning to look like pensioners are going to pay for down the road.

        • I opposed the GST cut.  But having said that, I opposed it for long-term fiscal reasons, and the general preference among tax wonks for consumption taxes over other taxes.  Rick Omen is still correct that there’s a case to be made that the GST cut probably dulled or ameliorated the effects of the 2008+ downturn for Canadians — we had more money in our pockets to spend.

          • Well i think he’s correct to the degree that those who were able to most take advantage of the GST cuts actually spent it [ not that debt reduction or saving is inherently a bad idea] but it raises the question of whether that money wasn’t better spent as stimulus directly by the govt and presumably as less borrowing and subsequent debt on the part of the govt; essentially was cutting the GST good stimulus – i haven’t seen any evidence to support Rick’s claim. 

          • I agree, it’s a legitimate question to pose and a legitimate debate to have.  I haven’t seen anything in the way of good, objective studies or data on the topic.  Instead, we get a lot of partisan bloviating on all sides.

          • Bloviating seems to conceptualize what passes for legitimate debate these days.

          • Thx for that. I’ll try and read it later when i have more time.

      • “…what corporations do with their money isn’t really any of your business…”

        Excuse me?

        Corporations exist and operate on the good graces of society alone. Without society they don’t bloody exist or operate.

        Not only do they have a resposibility to pay reasonable taxes and be good corporate citizens, but those tax rates are directly dependent on the social contract we as a people have determined.

        If the taxes are cut on the claim that it will increase jobs and prosperity, and it doesn’t increase jobs or prosperity, then yes, it is our “business” what they’ve done with the bloody money.

        If a corporation provides no net benefit to the society it makes its money from, but is instead a liability, then that corporation shouldn’t exist, simple as that.

        • But on what basis are you determining that this or that corporation provides no net benefit to society?  Are you saying all our corporations currently provide no net benefit to society?

          • No, I’m certainly not saying corporations provide no net benefit to society. In fact I believe quite the contrary on the whole.
            My intent was to point out the silliness of discussing corporations in isolation of the environments they exist in and rely on; as though they operate outside the purview of society.
            Corporations are just another way to organize a subset of society. A subset that exists as a means to advance society in the areas in which the corporation operates.
            We as a society cede a certain amount of control over our collective resources to people we believe can make the best use of it. For their effort and ingenuity we reward them with a much higher than average affluence. The downside for them is that they are beholden to society and its interests.
            The even greater affluence and power they have gained through globalization means they can play jurisdictions against one another in an effort to gain even more power. To me, the desire to gain benefit from these powerful entities has led governments to pander to them, which to me is the wrong approach and has exacerbated the power imbalance.
            Without suitable global controls, corporations could end up with an inordinate amount of power, assuming they don’t already have it. The fear of this has existed for a number of decades now and is played out in many movies and other forms of social discussion.
            It is a fear that does not lack in justification. While I am in favour of creating conditions for strong growth that benefits these firms, at the end of it there needs to be a palpable benefit to society. When we give up income as a society through lower taxes, or give up limited resources by allowing multi-nationals to work within our borders, or even just allow firms to sell products to our people, there should be a return from that investment in some way.
            For the most part I think there is, but that’s not to say the situation is ideal to any degree, and I think it behoves us all to ensure that this balance continues to be discussed openly and adjusted where necessary.

          • But on what basis are you determining that this or that corporation ended the Iraq war and counteracts Islamic terrorism? Or are you stating that all corporations provide endless peace to society?

            Oh wait.. you didn’t? My bad. I thought this was “put words in other people’s mouths” day.

        • And of course, the employees of said corporation should be punted to the curb?

  4. Let’s keep in mind that increasing program cost by 1% of GDP is a LOT of money.  Economic activity associated with the oilsands accounts for about 3% of Canada’s GDP, so simply supporting the increased cost of OAS would consume the equivalent of the entire profit of all oilsands companies (simplistically assuming a 30% profit margin on all of that activity.)  

    • First of all, the increase of 0.8% is merely the high point on the graph. For most of the time before and after that point, it is in fact lower.

      Secondly, even at that rate it would still be by far the lowest spending on pensions of this kind in the G7.

      Thirdly, a lot of this money goes to poor pensioners. Suggesting that this little blip is justification to make the poor poorer is ridiculous, when you look at the money being spent in other areas that could by far more easily absorb a cut.

  5. If you look at OAS in isolation it may not be a problem.  But if you look at OAS in the context of everything else, rising health care costs, and greater needs for continuing education and training in a rapidly changing world (to maintain our competitiveness), you have to make savings where you can.

    Considering that people are living longer, and are healthier, a reasonable place to find savings for other priorities like health care and education is increasing the age of eligibility for OAS.

    • Nice point. Most people look at each issue as a bubble. It all needs to be considered as part of the whole.

    • But they are not living that much longer FROM 65 than they did in the 1960s.  Maybe three years or something.  Our life expectancy has grown, sure, but that’s because disease and accidents took more people before they got to 65.  Our medical advances have meant less people die from this now as did then.  This is what I mean about the statistic of life expectancy fudging the issue.  Another interesting point is the increase in medical costs for those over 65, as we’ve all heard about.  But if people over 65 are so sick, how can we expect them to work?  Obviously, a large amount of people age 65-67 are perfectly healthy and can continue to work–as they are doing right now.  Some people age 65-67 (or 55-65 for that matter) do have health issues that preclude them from working.  Those people (the 55-65 ones, I mean) can usually get the CPP disability.  But doesn’t that end at 65?  Are we, at the same time we are moving the OAS eligibility, talking about extending the CPP disability?  Because if we are, I haven’t heard it.

      I agree with the concept of doing something, but I think it comes in as more tweaking than wholesale upheaval.  I’d just like to maintain the safety net–not develop a gap in the middle.

      • Life expectancy in Canada has increased from 71 years in 1960 to about 82 years currently. That is a significant increase and all indications are that number will continue to rise. Living 5 years past 65 versus 11 years … umhh, a yeah that is a big deal.

        • Let me try this again.  If you were born in 1960 (like I was) you could expect to live to about 71.  If you were born today you can expect to live to about 82.  This is on average.  You could also die at 3, 12, 26, 37, 42, etc.  Those deaths are part of the average.  In 1960, more people died before they reached 65, such that the life expectancy average was lower.  But once you’ve reached 65, all those people that had already died, while still part of the life expectancy average, don’t count as far as OAS is concerned.  So for example and assuming I make it to 65, I theoretically won’t die at 71 even though that was the life expectancy when I was born.  Because I’ve already made it through all those years where I could have gotten pneumonia or hit by a bus.  Life expectancy from 65 on hasn’t increased, on average, all that much.  Yes, it has increased, but not as much as the life expectancy figures would suggest, when you measure not from birth but from age 65 on.  But it was always also misleading to think you’d collect OAS for six years.  The reality was, on average, more than that. 

          • Great explanation 2Jenn.

            Unfortunately, math isn’t some people’s strong point.

          • Unfortunately it isn’t mine either, nor statistics.

            Great post Jenn [ i think?]
            #$%^&…now i’ll have to come back and reread this at least two more times. Any interesting background stuff for this – or is stats your thing, in which case don’t bother…please:) 

        • Life expectancy is an exercise in averaging. Averages are useful in some cases and not in others.

          If I live to 100 and you live to 60, the average is 80.

          And yet neither of us died at 80 eh?

          For a lot of people, the years 65 to 67 are their last. Many are sick or unable to work. They really need that money.

          So we’re going to make some people’s final years more brutal because… wait, why exactly?

          And here’s a hint: People with more money live longer for various reasons. These people have better funded retirements and are far less likely to collect OAS.

          I would suggest therefore that we are disproportionately impacting the poorer and sicker of society with this move.

          A move that is neither needed nor recommended by the majority of experts who have studied the topic.

  6. Also, McGuinty and Charest are going to have to slash and burn to get Ontario’s and Quebec’s fiscal houses in order.

    It is going to confuse the opposition message.  Rae and Topp/Mulcair screaming that modest austerity in Ottawa is outrageous, while McGuinty and Charest saying tough austerity is necessary.

    Harper is going to make the Liberals sound schizophrenic.

    • There won’t be any ‘slashing and burning’ in Ont and Que.

      The idea is to be smart about it….not use ancient methods from subsistence agriculture.

      • I’m willing to wager a twonie that Andrea Horvath won’t all McGuinty’s slashing-and -burning “smart”.

        • Well since nobody cares what she thinks, it won’t matter.

          • Vicious.

          • Ahh yes, this from the person who cheers on the wolves attacking seniors.

    • “Harper is going to make the Liberals sound schizophrenic.”

      No, but he will make them sound opportunistic.  What a novelty that will be.

  7. Also leading with OAS is strategic genius.  Because when he goes after civil service salaries and job cuts, the NDP will shift to defending an overpaid over benefited and over pensioned federal government work work force..

    The NDP and you guys in the media will be screaming about everything.

    And everything Harper will be doing will be far more modest than what will be happening provincially, in the States, and in Europe.

    • Interesting points, however the bottom line is that Big Corpo ends up benifiting in the end, while the common mortal is being left eating the crumbs. The ‘friendly fascists” around the world know they’re going down, but are showing some muscle before their ultimate downfall.

    • “And everything Harper will be doing will be far more modest than what will be happening provincially, in the States,”

      A “genius”might have tried it the other way around and gotten the public onside, not Harper cuz he’s the smartest guy in the room and as you say a “genius”!
      And your point is? Our situation is not so dire as the US and maybe the provinces so why shouldn’t Harper’s response be more modest?
      But perhaps you could explain why he used the phrase “crisis” repeatedly at Davos?

  8. Pension priorities: The game before the storm!

    Sustainability -Last thing Harper Wants!
    Keep in mind the Conservatives have forever wanted to totally privatize the CPP
    and OAS!

    To do this they have to reduce profits if not eliminate them and then, offer up
    privatization as being the only way out.

    They have created a company similar to Alberta’s AIMCO to assist the CPP. Since
    that time Alberta Conservatives has been busted for Stealing Alberta public
    pensions in their trust. (Held by AIMCo.

    Pension funds in Canada reported 0.50% increase last year while AIMCO reported
    a 8 billion dollar loss, totally shredding government pensions and throwing
    employee future plans out of
    the window.

    Like the Heritage Trust they have no intention of making it up even though they
    may talk about it.

    Since this post first went up Harper shut down discussion.

    The first Pensions were put in by Napoleon. Wanting to keep his army he asked what their life expectancy was and got the answer of 45 years.  It was then he made his decision to retire under his plan at 55.   Much the same reasoning is prevalent in today’s thinking.

    I’ll be supporting Alberta Liberals in the coming elections!

    • “They have created a company similar to Alberta’s AIMCO to assist the CPP”

      Do you have a link for that by chance?

      • albertathedetails.blogspot.com/2011/12/alberta-pensions-at-risk.html  is the link to the take down.

        I downloaded the 3 years of financial statements from the AIMco web site. If not available there let me know and will post the pdf to the above link.

        • Thx

      • Harpers company-Not just yet; CBC advises they are looking it up for me.

  9. lights up a cigar, sighs with satisfaction at another enjoyable Wells piece

    I think the truest sign of a fiscal conservative is the reminder that government can only spend on some people what it takes from others.  When programs are being cut, there tend to be cries of outrage at the heartlessness of it all when what is needed instead is a dispassionate consideration of (a) from whom the money is being taken, (b) whether the state should be forcibly redistributing it in this manner.  

    • I know. After all charities and soup kitchens are so much simplier to set up, and so much more immediately effective, and so much more voluntary in nature.

      • I know you intend this to be sarcastic, but you’re exactly right!

        • but you’re exactly right…sorry but just to be clear, which century are you referring to?

      • I know you meant this as sarcasm, but you’re exactly right!

  10. Bang on Paul Wells.

    Thank you for the clarity.

    Cheers, PK

  11. Not that this will be of concern to the Cons, but the demographic most likely to suffer a large impact from pushing the OAS to age 67 is the poor — they tend to be less healthy due to poorer diet (i.e. eating what they can afford) and thus less able to work as they grow older.

    They are also the ones who benefited the least from the GST cut — they can’t spend what they don’t have so saving 2% of nothing really doesn’t benefit them much.

  12. I find this interesting -http://www.civilization.ca/cmc/exhibitions/hist/pensions/cpp-a28-wcr_e.shtml
    The Old Age Security Act introduced a universal, flat-rate
    pension for people 70 and over, with 20 years residence in Canada
    immediately prior to the approval of an application as sufficient

  13. Edward Whitehouse, economist for World bank and Kevin Page the official Canadian parliamentary budget officer (watchdog) have examined the pension system in Canada and agree on their results…That asssessment result  is that the Plans are fully sustainable and no changes are needed at all. They mentioned that any “age increase for eligibility” to  these plans was “not necessary” because the Plans (CPP and OAS) are economically viable as is….The questions are..  Why did Harper distort the status of the Plans and their sustainability?…  and… What was his agenda?  

  14. 1-877-227-8577, that is the Service Canada number for CPP disability. I double dog dare anyone to call this number. Talk about the weather, ask how they are and just ask how your file is going. Do NOT worry about needing data or details as ALL they are instructed to tell “clients” is they have no information whatsoever to provide but they can have someone call you back in 3-5 business days if you want to wait by the phone. A thing about Harper, whatever he calls a department, it’s job is actually the opposite. So, here we have Service Canada and the very last thing you’ll ever get…….is any service!!! Make the call, see what Harper has done for the disabled among us;)

  15. Its worse. If you examine what people paid into CPP and the ROI, its a tax folks. CPP retirees got a 0.9% raise, OSA got a 0.1% raise and inflation and CPP inpts rose a lot more than that. But employees are paying much higher input rates.

    Ottawa is trying to hide the fact after 4 decades of mismanaging CPP the costs of below inflation returns can’t be hidden any more. Yep, politicians and govmint unions screwed up retirement huge, over $500+++ billion, and even more in govmint and crown corp plans.

    Thank my stars I saw this in my 20s….and at 56 my RRSP that got less inputs than CPP on my behalf, now yields almost 3 times what CPP/OAS would pay if I was 65. CPP ROI is pathetic when a non-pro home investor can blow the pants off of a fund like CPP.

    Its why I say, if you are serious about a real pension, get it in your name/account/control and if pooled plan scammers want pooled money, let them define a fair return and not wait 30-45 years to find out you are being screwed. Its a little late to fix it at 57 than 22.

    In your name/account/control and the rest is a scam on the peoples. Even in death, my spouse/estate gets the value and doesn’t anticipate in the pooled plans dark hole for wealth. And when I rolled over my NorTel pension in 1995, I didn’t get the wrote downs and bamboozling.

    In your name/account/control and the rest is fraud.

Sign in to comment.