Gordon Powers

Improved healthcare and falling birth rates mean the average age of people in developed countries is rising. By 2050, some societies face the expensive prospect of having as many retirees as active workers, according to the Organisation for Economic Co-operation and Development (OECD).

And paying pensions to all those folks, particularly here in Canada, will be no mean feat.

Over the next 20 years, the number of Canadians over 65 will climb to more than nine million from roughly half that right now.

More importantly, the cost of delivering Old Age Security benefits to that group is expected to almost triple to $108 billion from roughly $37 billion right now.

Unlike the Canada Pension Plan, which has a significant pool of money backing it, the OAS program is paid out of government revenues which are coming under pressure on several fronts.

So, it shouldn't have come as much of a surprise when Prime Minister Stephen Harper told world leaders at a recent economic forum that this country's aging population poses "a threat to the social programs and services that Canadians cherish" and that he was the man to fix things.

Rhetoric or not, there is a real problem at hand.

At the moment, there are roughly four workers for every person over 65 in Canada. That mix, known as the dependency ratio, is expected to drop to less than three-to-one over the next 20 years.

And that would mean fewer people working and paying taxes to support social programs, particularly public pensions.

* Tell us: Is raising the retirement age a good idea?

The bigger issue is what the government is going to do about this shortfall — and when.

There are a few options available, some of which are easier to implement than others. On the assumption that current recipients wouldn't be affected, the government could, for instance, choose to:

  • Increase the age of eligibility for OAS to 67 from 65
  • Reduce or cap the indexing that protects OAS payments from inflation
  • Boost the number of years you have to live in Canada to qualify
  • Adjust the income threshold (currently about $68,000) at which OAS payments are clawed back