The normal retirement age is rising in many developed countries. How long can Canada cling to 65?

People around the world are leaving the work force later because governments in most developed countries are raising their normal retirement age.

The OECD defines “normal retirement age” as the age when a person who has worked full-time for many years becomes eligible – without penalty – for all pension benefits under their social security plans.

In Canada, normal retirement age for both the Canada/Quebec Pension Plan and Old Age Security pension is 65. This has held steady since the 1960s and there are no known plans to change it.

That isn’t the case elsewhere, though. As the chart shows, countries such as Norway and Australia, among others, have already increased their normal retirement age above 65 and more will do so over the next few decades.

The most dramatic increases are taking place in Sweden, Denmark, Italy, Portugal and the Netherlands, which have all decided to link their normal retirement age directly to future changes in life expectancy. Denmark in particular stands out as its normal retirement age will eventually rise to 74.

Other countries, such as Belgium and Britain, are also taking steps to increase normal retirement age though the link to increased life expectancy isn’t as direct.

Why is this happening? One can almost accept the notion that the retirement period is already a lot longer than it used to be and doesn’t need to get any longer. On the other hand, healthy life expectancy is not increasing as fast as total life expectancy, so maybe normal retirement age should rise more slowly. Otherwise, the number of healthy years in retirement could shrink.

Perhaps the real reason for the rise in normal retirement age is to ease funding pressures because there are more pensioners and fewer contributors in these aging societies.

In a rare show of prescience, the United States foresaw a funding problem as far back as the 1980s, which is when they announced they would phase in a normal retirement age of 67. The phase-in took decades and will finally be completed this coming November.

But another increase beyond age 67 already seems quite likely in the U.S., though no one is talking about it just yet. That is because the U.S. has always funded its social security pensions on a pay-as-you-go basis, which essentially makes it a Ponzi scheme.

The funds available to pay benefits are being depleted and it is a near-certainty that the Social Security Administration will have to cut pensions by 20 per cent or more by 2032. The alternative is to increase taxes but that is as palatable as cutting pensions so it will be interesting to see how the issue is ultimately resolved.

Canada is one of a handful of countries that is staunchly standing firm with 65 as its normal retirement age. This is thanks to former prime minister Justin Trudeau, who cancelled predecessor Stephen Harper’s planned increase in the normal retirement age for OAS pensions to 67 soon after coming into office.

I expect this will be revisited in the near future as we find ourselves increasingly out of step with the rest of the developed world. We may not have the funding issues that other countries have but we do need to encourage older people to work longer as our work force continues to shrink.

And having one of the earliest normal retirement ages in the world is not helping.

Frederick Vettese is former chief actuary of Morneau Shepell and author of Retirement Income for Life.