Canada will have to make tough decisions that will affect when individuals retire, writes Peter Watson.
This could affect everything from Canada Pension Plan, Old Age Security, Registered Retirement Income Fund, and the current age some younger workers are able to retire with pension benefits.
We had a recent example of how a population reacts to these types of changes by observing what happened in France.
France increased the retirement age from 62 to 64 years. The country’s rationale was that if this were not done, its current pension system would go broke.
The reaction was extreme. The government had to use a special procedure to skip the requirement to vote on the unpopular pension reform. The National Assembly degenerated into a shouting match.
The protest spread to the streets. Citizens did not like the retirement age increasing by two years and they were angry.
For our country, making any significant and unpopular changes that affect people’s ability to retire would be political suicide. Under current circumstances that is unlikely to be done.
My thought is if Canada got into a serious financial predicament, our government might be forced to make difficult financial changes. This could happen with a collapse of our economy that required major adjustments.
The second way this might happen is a result of our changing population. We are living longer and therefore spending more years in retirement. Rebalancing of our current ways might require everyone to work longer.
Age 65 used to be considered the ideal age to retire. In hindsight a more affordable option for Canada is if retirement age would be a certain number of years before life expectancy. That way as people continued living longer their years in the workforce would increase.
Pension reform is likely to happen, and my feeling is politicians would like to delay that as long as possible.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
