Lies, damn lies and statistics
Old Age Security reform is worth discussion, but we’d better base it in evidence first
A version of this commentary appeared in The Hill Times
The debate around raising the age of eligibility for Old AgeSecurity (OAS) has only just begun and already we are upto our necks in misleading information. Unfortunately,some commentators have decided to use statistics theway a drunk uses a lamppost—more for support thanillumination.Recent examples from well-known and highly respectedcommentators (who should know better) have made somealarming claims. For example, that the percentage of thepopulation collecting a pension will double over the next 20years; or that the ratio of workers to retirees is headed toa 2 to 1 ratio; or that the OAS will triple in cost from $36billion to $108-billion by 2030; and that there’s an $800 billion underfunded liability in our Canada PensionPlan (CPP), along with the Quebec Pension Plan (QPP)While all of these statistics are accurate, they are so horribly out of context as to be useless or evenharmful in pushing knowledge forward. No wonder the public is alarmed. But let’s look at the facts.The $800 billion unfunded liability in the C/QPP is based on evaluating these programs in the same manner as a private sector pension plan. There is a $800 billion promise that is not pre-funded, because, unlikeGeneral Motors or Air Canada, we do not expect the Canadian government to go into bankruptcy and closetheir doors at any time. Thus, it is far more accurate to evaluate the C/QPP on the assumptions that therewill be future contributors and future contributions. When that is done, there is effectively no unfundedliability in these systems.This has been supported with every Actuarial Report of the CPP since its revision in 1996. These reportsshow clearly that the CPP is sustainable for the next 75 years at the current 9.9% contribution rate.Similarly, the QPP is sustainable for 75 years at a contribution rate of 10.8%.It is also true that the dollar, nominal, cost of OAS will rise from $36B today to $108B in 2030. But in thatperiod of time, we expect the economy to grow. The question is not how many dollars OAS will cost, it iswhether or not that cost is sustainable.There are many features of the OAS program, including the Guaranteed Income Supplement (GIS), that limitthe real rise in costs. OAS benefits are taxable income so many of the benefit dollars paid out go right backto Ottawa. Both OAS and GIS (WHAT IS GIS?) have claw backs which mean that wealthy Canadians getabsolutely no benefits out of either program.Further, OAS benefits rise with the Consumer Price Index not wage growth. And it is fair to assume that theeconomy and wages will grow faster than the cost of living. On that assumption, OAS costs which are 2.3%of GDP today will rise to 3.1% by 2030. And by 2050, as the baby boom dies off, that cost will be 2.7% of GDP.