Greener Pastures: Resetting the Age of Eligibility for Social Security Based on Actuarial Science

Due to low fertility rates, rising life expectancies and the aging of the baby boom, Canada’s Old Age Dependency Ratio is rising. This will strain the sustainability of our Social Security systems and healthcare. Other countries with aging populations are raising the Age of Eligibility (AOE) for social security benefits. This paper was inspired by work done in the UK for the Institute and Faculty of Actuaries State Pension Age Working Party. Our study applies their methodology onto the Canadian context. The UK proposal is based on actuarial and demographic logic that would see a rise in the AOE to guarantee a constant proportion of one’s adult life is spent in retirement. Thus, as life expectancy rises, there is an upward shift in the AOE for Social Security. Shifting the AOE upwards is regressive since wealthier Canadians live longer. We argue that this can be mitigated by changing the clawback formulae now used in the OAS and GIS. The Commentary concludes by proposing that the formula should become an Automatic Balancing Mechanism beyond any political interference.