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Is Canada’s Retirement Plan Safe?


Canada and the World
Compared to the rest of the developed world, Canada is neither doing very well nor very poorly. We seem to be hovering somewhere in the middle in terms of our demographic problem. The bulge in our demographic curve due to the large baby boomer cohort has been rising to the top of our population pyramid.

If you recall years back when you first began to learn how to draw population pyramids, you’ll remember that the males are placed on the left side and females are on the right side, corresponding to a specific age group from youngest to oldest.

As a result of the baby boomers, most countries in the developed world are ‘top heavy’ in terms of their population pyramids. Since the younger generations are graphed at the bottom of population pyramids, the shrinking birth rate in many countries has made this area much thinner than the middle and top areas that is representative of the currently working and older populations.

Canada’s population pyramid is not as top heavy as say Japan or Italy, who have very large portions of their population already retired. Yet, compared to countries such as the United States and Australia, we are not doing as well, since their populations are predominantly younger than ours.

The different shapes of the population pyramids of these developed countries are further evidenced by examining the fertility rates in each of these countries. The fertility rate is defined as the average number of children a woman is expected to have during her lifetime. Canada’s fertility rate is quite low at 1.6 children per woman, compared to the United States’ 2.1, Australia’s 1.8, and the United Kingdom’s 1.9 rates.

Back when the baby boomers were being born, Canada’s birth rate was on average 28 births per 1000 person. But the problem is that although so many boomers were born, they in turn did not have as many kids or grandchildren. By 1970, the birth rate had dropped to 17 births per 1000 people, and by 2000, Canada hovered around 11 births per 1000 persons.

There is not much to do to increase the fertility rate of a country, aside from providing incentives such as baby bonuses and tax reductions. Since it is difficult to change the lifestyle choice of an entire generation, Canada has been using immigrants to even out the shrinking population and workforce instead.

The reasons behind the preoccupation with an aging population come from the fear that we simply won’t be able to support them.

Although there are problems in Canada’s immigration system—mainly due to inefficiencies—newcomers are one of the main reasons why Canada’s median age isn’t higher than it currently is. If we look south at the United States, we can see that their median age is younger, characterized by a population pyramid that strongly resembles a square.

This is in large due to their influxes of immigrants every year from more relaxed immigration policies. Countries in the European Union have stricter immigration laws, and it shows in their much older age profile.


What Is There To Fear?
The reasons behind the preoccupation with an aging population come from the fear that we simply won’t be able to support them. As the baby boomers retire, pension funds—public and private—are going to be depleted at a time when the tax base for Canada will be shrinking. A reduction in the workforce means a reduction in taxes to fund the many social maladies that will be popping up: health care and old age security for the most part.

To be blunt, senior citizens cost more. An older person costs five times as much in health care as a young adult. Does Canada have the funds to support a predominantly old population, especially in light of decreasing tax revenues? Probably not, but the degree to which immigration can fill this void remains to be seen.

Despite the optimism towards the effects of immigration on the aging population, there have been warnings that substantially higher influxes of immigrants each year into Canada will not be able to stop the statistical aging. But there remains widespread hope that immigration will help negate and even begin to reverse some of the effects of an older population on the economy and labour market.

ARB Team
Arbitrage Magazine
Business News with BITE.

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  • Financial Panther

    Great points to consider for the future. I think many of us will certainly face challenges in the future with our own retirement funding, as well as caring for an aging population and dealing with the side effects accompanying it. Thanks for your insight! :)

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