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One of the great public policy challenges we face as a nation is the concept of intergenerational fairness. The problem is exacerbated by demographic realities. Baby boomers and those older still make up a large portion of the population and are a powerful voting bloc not only because of their sheer numbers, but also because they tend to vote more predictably than other generations. Accordingly, politicians might feel inclined to pander to this group. Good public policy may be sacrificed in the name of shrewd retail politics.

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One of the least understood and least appreciated risks in retirement planning is longevity risk. These were seldom problems a half century ago when the retirement age for men was about 65 or 66 and for women was about 63. People died, on average, at around age 72 (69 for men; 76 for women). Life in retirement was often short.

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Today, the average retirement age is still around 65, but the average age of death is about ten years later than in 1975 (about 79 for men and 84 for women). Planning for retirement was much easier when people had the good sense to die at a relatively young age. As such, the risk of outliving your money is a very 21st-century problem.

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General need for most people is a reasonable basis for maintaining the status quo. People live longer, but not everyone needs government support. The long-term sustainability of our social programs can and should be called into question, at least in terms of fairness. It may be time to re-visit the concept of means testing.

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Let’s look at the Old Age Security (OAS) program in Canada as a case study. The OAS program is primarily funded through general tax revenues, so unlike pension plans that are funded by specific contributions from employees and employers, it is paid for out of the government’s general revenues — the taxes collected by the federal government. The good news is that the format helps keep the program flexible and sustainable, as it doesn’t depend on, for instance, market performance or a fixed number of employees. This is especially important as the population ages. The bad news is that it costs more and more as time goes on, for the same reason.

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In 2012, there was a major change proposed by then-finance minister Jim Flaherty which would have gradually increased the age of eligibility for OAS from 65 to 67. The proposed change was intended to help manage the long-term sustainability of the program. Then came the 2015 federal election. Under Justin Trudeau’s government, several notable changes were made to the OAS system. Specifically, they reversed the Flaherty plan and increased the Guaranteed Income Supplement (GIS) for low-income seniors, helping lift many out of poverty. One step back; one step forward.

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In 2022, the government tinkered further and introduced a 10 per cent increase in OAS for seniors aged 75 and over and also provided a one-time $500 payment to those seniors. The current system is great (many would even say generous) for the elderly poor. Of course, not all old people are paupers.

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One major issue Canada’s OAS system faces these days is that it provides benefits to higher-income seniors. The other concern is the rising cost of the program itself, which is expected to increase significantly in the coming decades. There are growing concerns the income thresholds for clawbacks are too high.