Socio-Demographic Changes and the Pension Problem in Canada

Ledent, J. (1992). Socio-Demographic Changes and the Pension Problem in Canada. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-92-068

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Abstract

This study investigates the impact of alternative demographic futures on the Canadian pension system.

The Canadian population, disaggregated by age, sex, and marital status, is projected forward to the year 2051 under six alternative sets of assumptions, comprising four sets shared by all national studies (including the benchmark scenario) and two sets specific to this study (including the national scenario). According to these projections, the old age dependency ratio, or ratio of the old age to the working age populations, will be multiplied by about 2.5 between now and 2030 -- slightly less under the benchmark scenario (based on unchanged patterns of fertility, mortality, and marital status change but assuming no external migration) but slightly more under the national scenario (based on a further mortality decline and allowing for external migration at mid-eighties levels). In other words, socio-demographic changes are likely in the future to exert some tremendous pressures on the financing of public pensions.

Based on these demographic projections, use of the IIASA pension model reveals the ineluctability of a formidable increase in the contribution rate of workers to the Canada/Quebec Pension Plan so that contributions to this plan continue to counterbalance the benefits offered to retirees (old age benefits to which any Canadian aged 65 and over is entitled are paid out of the general budget). But the increase required could be mitigated by the adoption of accompanying policies, two of which (increase in the labor force participation of men and raise of the retirement age) are also briefly investigated.

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