Policy Brief No. 6 - Age of Pension Eligibility, Life Expectancy, and Social Policy

As the baby-boom generation retires over the next two decades, there will be a sharp increase in the fraction of the population eligible to receive public pension benefits. This increase would happen even without ongoing reductions in mortality rates and the resultant increases in life expectancy. However, reductions in mortality mean that the impact will be even greater, especially if no offsetting adjustment is made to the age at which people are eligible to receive pension benefits. Continued gains in life expectancy, when not accompanied by an extension of working life, result in increasingly large fractions of the human lifespan being spent in retirement. That, in turn, gives rise to concerns about prospective increases in public pension costs and the level of support expected from the post-baby-boom generation. At the same time, the age at which benefits are payable affects the age of retirement. We illustrate how a gradual and modest increase in the age of eligibility for public pension benefits (defined here to include those available under the Canada and Quebec Pension Plans, CPP/QPP, and Old Age Security, OAS) would (1) moderate the inevitable decline in the size of the labour force relative to the size of the population eligible to receive retirement pensions and (2) reduce the contribution rate needed to maintain the retirement income system