An aging population and rising fiscal strains are prompting Canada to rethink established policy models, with retirement support at the forefront of the debate, Scotiabank Economics said on Wednesday.
With almost one in five Canadians now over 65, population aging is set to drive rising public expenditures, the bank wrote. At the center of the issue is Old Age Security (OAS), accounting for close to 60% of direct federal transfers to households and forecast to reach $100 billion annually by the end of the decade.
"Canada is rapidly aging," wrote Rebekah Young, Vice-President of Economic Policy, in the note. "The next phase of aging will look very different -- and cost much more --than the one the country is experiencing now."
As fiscal choices become more difficult, maintaining near-universal OAS benefits is increasingly challenging, stated Scotiabank. However, reducing benefits is politically challenging because of retirees' dependence on the program and doubts among younger Canadians about its future.
Instead of focusing solely on benefit reductions, policymakers could redesign OAS to better reflect retirement needs over time, added the bank. The government could redesign OAS around a model that encourages earlier retirement saving while providing stronger income support later in life.
The key challenge is creating a sustainable system that provides Canadians with long-term financial confidence, according to Scotiabank's Young.