In view of the anticipated degradation of contributions vis-a-vis benefits, this section investigates how policy measures designed to bring about a larger labor force would contribute to reducing the mismatch between contributions and benefits. Below two possible scenarios based on demographic conditions similar to those underlying the benchmark scenario16 are examined. In the first, the "GDR scenario", a larger labor force stems from increasing labor force participation, whereas in the second, the "65 scenario", it stems from delaying retirement.
Specifically, the GDR scenario assumes that by the year 2006, Canadians will have a pattern of labor force participation identical to that exhibited in 1985 in the German Democratic Republic. This latter pattern is characterized by a high participation of women and, as a result, the average number of years worked by females would increase very rapidly, reaching 35.2 years in 2001 versus 22.1 years in the benchmark scenario (see Table 13).
As a consequence of higher labor force participation, the size of the labor force would surpass substantially that of the benchmark scenario. At the turn of the century, the addition to the labor force would be 12.1 percent higher. Thereafter, as labor force participation rates are assumed to remain constant after 2006, the additions to the labor force should decline slightly in absolute terms (as a result of the built-in demographic assumptions) but should not change much in relative terms. In fact, a uniform magnification of 12-13 percent--which on the basis of the IIASA pension model is equally applicable to the amount of contributions--would be observed throughout the first half of next century.
At the same time, the number of retirees would register a deficit of only several hundred thousand in 2001 that would increase slightly over time as the additions to the labor force just mentioned would eventually retire. Note that this deficit would consist exclusively of women as the labor force participation of older males in the GDR is virtually identical to that observed in Canada. In relative terms, the shortfall in the retired population would oscillate between 6 and 8 percent throughout the next half of the century. As the amount of survivor's benefits would remain the same as in the benchmark scenario, this translates into a 5-7 percent deficit in the amount of total benefits.
Compounding the relative changes in contributions and benefits estimated above yields a relative change of about 20 percent in the contributions-to-benefits ratio which, considering the anticipated low values of this ratio under the benchmark
161mplementation of this section was carried out by simply assuming no external migration.
Accounting for this component of change, however, would affect the results only marginally.
scenario, is unlikely to restore financial equilibrium of the C/QPP scheme (see Table 14).
Alternatively, the 65 scenario assumes that age at retirement for both genders is progressively raised to reach 65 years by 2005 and that no survivor's pensions are served under 60." With such an assumption, the average number of years worked would register a rather modest upward shift of 1.2 years for females and 2.2 years for males by 2051 (see Table 13). The size of the labor force thus would present additions, divided equally between the two genders, of about half a million in absolute terms and about 4 percent in relative terms. Such an impact is indeed much smaller than in the GDR scenario (12-13 percent) because, unlike the latter scenario which assumes an upward shift in labor force participation for all age groups, the 65 scenario assumes such an upward shift only for the older age groups.
By contrast, the shortfall in the retired population, again divided equally between the genders, would be much higher than in the GDR scenario. It could reach 1.3 million early next century before stabilizing at 1.1 million after 2031. This is about 15 percent above the corresponding level in the benchmark scenario versus 6.8 percent in the case of the GDR scenario.
The combined influence of the shifts in the labor force and in the retired population just assessed results, on the basis of the IIASA pension model, in an upward shift in the contributions-to-benefits ratio of about 20 percent, but slightly under this mark this time (see Table 14).
To conclude, the two alternative policy measures investigated here appear to have very similar long-term effects on the Canadian system of public pensions. Both would lead to a 20 percent improvement in the value of the contributions-to-benefits ratio relating to the C/QPP scheme (slightly more in the case of the GDR scenario, slightly less in the case of the 65 scenario), but they would achieve this result in quite a different way. The first scenario is geared foremost toward increasing contributions whereas the second is essentially aiming to reduce benefits.18
8. CONCLUSION
Under any plausible scenario, the anticipated growth of the old-age population will be higher than that of the working-age population until about 2030. Thus, the ratio of the former to the latter (old-age dependency ratio) will be multiplied by 2.3 between now and 2030, which is likely to exert some tremendous pressures on the
"Higher labor force participation rates are also assumed for the age groups 55-59 and 60-64.
'90 evaluate fully this result, it must be borne in mind that the benchmark scenario used in this section assumes non-zero retirement ratios before age 65, whereas in fact payments under the OAS scheme and, until recently, under the C/QPP scheme, are made only to elderly 65 and over.
financing of (1)OAS benefits through taxation and (2) retirement and survivor's pensions through the C/QPP.
In addition, the lower nuptiality and higher divorce intensities that prevail today as compared to earlier decades leads one to anticipate a significant modification of the marital composition of the elderly population. On the one hand, the expected decrease in the proportion married and thus in the proportion widowed (all the more so because of an expected reduction in mortality) will reduce the proportion of those elderly entitled to survivor's pensions and thus under the C/QPP scheme retirement benefits will grow comparatively more than survivor's pensions. On the other hand, the expected increase in the proportion single and divorced will augment the proportion of those entitled to full-rate payments under the federal government's GIs scheme.
In other words, the expected aging of the Canadian population is likely to exert tremendous pressures on Canada's public pension system. Benefits are likely to increase rapidly and, based on demographic considerations alone, the increase will be higher (lower) for GIs benefits (C/QPP survivor's benefits) than for retirement benefits paid under both the OAS and C/QPP schemes.
Regarding the Q/CPP scheme, future demographic patterns (in terms of fertility, mortality, marital change, and immigration) are likely to bring about, between now and 2030, a doubling in value of the ratio of the number of beneficiaries to that of
contributor^.'^
From this, application of the IIASA pension model, based on an unchanged contribution rate, suggests the inevitable degradation of the financial equilibrium of the C/QPP scheme. The same result, however, would be obtained, were the contribution rate increased according to the schedule indicated in footnote10.
'gBeyond 2030, the two numbers will evolve more or less in the same way.
Table 1
Nuptiality statistics by gender: 1970-1 972, 1975-1 977, and 1980-1982
Females Males
Proportion ever marrying .92 .90 .88 .90 .88 .85
Mean age at first
marriage (in years) 22.80 23.75 24.69 24.95 25.95 26.98 Proportion of marriages
- ending in widowhood .58 .53 -51 .23 .20 .20
- ending in divorce .19 .26 .29 .19 .27 .29
Proportion of individuals remarrying among
- widow(er)s .09 .07 .06 .24 .21 .17
- divorcees .79 .75 .69 .85 .84 .80
Source: 0. B. Adams and D. N. Nagnur (1988), Marriage, Divorce, and Mortality: A Life Table for Canada and Regions, 1980- 1982, Catalogue 84-536. Ottawa: Supply and Services Canada.
Table 2
Mortality statistics by gender, 1950-1 982 to 1985-1 987
Life expectancy (in years) Survivors (per 1,000 born)
Year At birth At age At age At age At age
60 80 60 80
Females
Males
Sources: 1950-1 952 to 1985-1 987: Statistics Canada, Life Tables and Provinces, Catalogue 84-206. Ottawa: Supply and Services Canada (various issues).
1985-1 987: Statistics Canada (1 989), Life Tables, Canada and Provinces, 1985- 1987, Standard Table 41044. Health Division, Statistics Canada, Ottawa.
Table 3
Population by broad age groups, 1951 -2051
Absolute (thousands) Relative (percent)
Year 0-14 15-59 60+ Total 0-14 15-59 60+ Total
Benchmark scenario 5 744 17 825 4 859 28 428 20.2 5 083 17 993 6 752 29 828 17.0
5096 16817 8232 30145 16.9
4 698 16 275 7 859 28 832 16.3 Fertility scenario
6031 17825 4859 28715 21 .O
6016 18268 6752 31036 19.4
6318 17966 8232 32516 19.4
6499 18988 7859 33346 19.5
Mortality scenario 5 752 17 876 5 076 28 704 20.0
5114 18193 7829 31136 16.4
5152 17088 10127 32367 15.9
4774 16641 10330 31745 15.0
Western scenario
Migration scenario
5016 30069 20.4 62.9 16.7 100.0 7 144 33 284 17.6 61.0 21.5 100.0 9 104 35 433 17.4 56.9 25.7 100.0 9 379 36 391 16.8 57.4 25.8 100.0
National scenario
Source: 1951 to 1986: Statistics Canada (1987), 1986 Census of Canada - Population and Dwelling Characteristics - Age, Sex, and Marital Status, Catalog ue 93- 1 0 1 . Ottawa:
Supply and Services Canada.
Table 4
Dependency ratios, 1986-2051 Year
Scenario 1986 2001 201 6 2031 205 1
Young-age dependency ratio
Benchmark 31.3 30.2 25.5 27.4 26.0
Fertility 31.7 29.8 32.0 31.2
Mortality 30.1 25.3 27.1 25.7
Western 28.3 19.9 21.2 19.2
Migration 30.5 26.2 27.7 26.5
National 30.4 26.1 27.6 26.4
Old-age dependency ratio Benchmark
Fertility Mortality Western Migration National
Benchmark Fertility Mortality Western Migration National
Total dependency ratio
47 .O 49.3 49.6
50.9 53.5
50.3 53.9
47.7 45.4
49.1 48.8
49.9 51.6
Table 5
Marital composition of the population aged 60 and over by gender. 1986-2051
Females Males
hdex d Year Single Married Divorced Widowed Told Single Married Divorced Widowed Total dissimilaritya
Benchmark scenario 6.5 73.3 7.1 71.3 11.4 66.2 15.2 62.1 Mortality scenario
6.5 73.6 7.0 71.4 10.7 65.8 14.5 59.4 Western scenario
6.6 73.3 7.7 68.0 14.9 57.5 29.3 45.1
Migration scenario
6.4 73.5 6.7 13.4 100.0
6.9 71.7 8.5 12.9 100.0
10.9 66.9 8.8 13.4 100.0
14.2 63.1 8.8 14.0 100.0
National scenario
6.4 74.5 6.7 12.4 100.0
6.9 72.8 8.7 11.6 100.0
10.5 68.0 9.1 12.4 100.0
13.8 63.3 9.2 13.7 100.0
a This Index is calculated by means d D = 0.5 I 1, - m i I where fi and m, are the poponions of those aged 60 and over who are of marital status i among bmales and males, respedrvely. 1
Table 6
A Canadian public pension schemes, 1986
Scheme
Number of . . Total benefits
beneficiaries ~ e r re- (billions of (thousands)a Maximum Average dollars)b
Schemes financed throuah taxation
1. Old Age Security (OAS)2 651.2C 291.51 291.51 8.9
2. Guaranteed Income 346.451
Security (GIs) 1 329.94 225.63e
-
250 3.3Total 12.5~
CanadaIQuebec Pension Plan (C/QPP) 9 3a. Retirement benefits 1 ~ 7 3 . 5 ~ 486.1 1 249.93 4.3 3b. Survivors' benefits 1 5~56.5~ 291.67 1 64.44 1.2 Total 6.81 a. In March 1986.
b. For fiscal year 1985-1 986.
c. According to the 1986 census, the population aged 65 and over was 2,697.6 thousand.
d. 21.1 percent of those beneficiaries received the maximum amount of benefit.
e. The first figure is the maximum amount awarded to a single pensioner; the second is the maximum amount awarded to each pensioner in a two-pensioner family.
f. Includes $0.3 billion under the new Spouse's Allowance (SPA) program.
g. During the 1986 calendar program, 11,761.9 thousand people contributed to the CIQPP plan for a total amount of $6.4 billion.
h. Percent of those beneficiaries who receive the maximum benefit.
i. lncludes 251.9 thousand survivors under 65 years old.
j Includes other types of benefits (disability benefits, orphan's benefits, and death benefits).
Sources: Health and Welfare Canada (1 986), Canada Pension Plan Statistical Bulletin, vol. 18, no 2.
Health and Welfare Canada ( 1 986), Canada Pension Plan Contributors 1986.
Ministere des affaires sociales du Quebec (1988), Statistiques 1987 - Rdgime de rentes du Quebec /Allocations familiales du Qudbec.
Health and Welfare Canada (1988), Inventory of lncome Security Programs in Canada. Recent Initiatives and Statistical Update as of January 1987.
Table 7
Average number of years worked at mean age at retirement by gender, 1986-2051 (benchmark scenario)
Year
Gender 1986 200 1 201 6 203 1 205 1
Females 17.1 22.1 28.4 31.1 31.1
Males 42.2 40.9 39.8 40.4 40.1
Table 8
Pension benefits, 1986-2051
Value (millions of dollars) Index (1 986 = 100) Type of
Scenario benefits 1986 2001 2016 2031 205 1 2001 2016 2031 2051
Benchmark Old age 22 265 Survivor's 1 324 Total 23 590 Mortality Old age
Survivor's Total Western Old age
Survivor's Total Migration Old age
Survivor's Total National Old age
Survivor's Total
Table 9
Pension benefits, 1986-2051 : distribution by type and average annual growth rates
Distribution by type Average annual growth rate (%) Type of
Scenario benefits 1986 2001 2016 2031 205 1 1986- 2001- 2016- 2031- 2001 2016 2031 2051 Benchmark Old age 94.4
Survivor's 5.6 Total 100.0 Mortality Old age
Survivor's Total Western Old age
Survivor's Total Migration Old age
Survivor's Total National Old age
Survivor's Total
24 Table 10
Evolution of the labor force by gender, 1986-2051 Year
Table 11
Evolution of the contributions-to-benefits ratio, 1986-2051 Year
Contribution rates (percent) corresponding to a balanced pension fund, 1986-2051
Note: 1986 actual contribution rate was 3.6 percent.
Table 13
Impact of selected policy measures on the gender-specific results of the benchmark scenario, 1986-2051
Year
Scenario Gender 1986 2001 201 6 2031 2051
A- Percentage change in the average number of years worked
GDR Females 59.2 27.8 16.7 16.7
Males 9.2 11.0 8.2 8.2
65 Females 5.8 4.2 3.8 3.8
Males 4.6 5.3 5.5 5.5
B- Percentage change in total benefits
GDR Females -1 0.9 -1 0.5 -9.0 -1 0.0
Males t t t t
Both -6.4 -6.1 -5.3 -5.9
65 Females -15.7 -1 8.5 -1 2.3 -1 4.5
Males -20.8 -24.2 -1 7.4 -18.1
Both -1 7.5 -20.9 -14.4 -1 6.0
G Percentaae chanae in labor force
GDR Females 18.0 17.2 16.6 16.9
Males 7.6 9.3 9.5 10.0
Both 12.1 12.6 12.5 12.9
65 Females 3.6 5.3 4.4 5.3
Males 2.7 3.6 3.9 4.1
Both 3.1 4.3 4.1 4.6
Table 14
Impact of selected policy measures on the contributions-to-benefits (type II) ratio of the benchmark scenario, 1986-2051
Year Scenario
Benchmark 0.74 0.60 0.47 0.34 0.25
GDR 0.72 0.56 0.40 0.30
Figure 1
Total fertility rate, 1945-1 988
year
Source: Statistics Canada, Vital Statistics - Births and Deaths, Catalogue 84-204. Ottawa:
Supply and Services Canada (various annual issues).
Figure 2
Percentage of births to non-married females, 1945-1986
year
Source: Statistics Canada, Vital Statistics - Births and Deaths, Catalogue 84-204. Ottawa:
Supply and Services Canada (various annual issues).
Figure 3
Mean age at first marriage by gender, 1945-1 986
Year
females - - - - - males
Source: Statistics Canada, Vital Statistics - Marriages and Divorces, Catalogue 84-205. Ottawa:
Supply and Services Canada (various annuel issues).
Figure 4
Components of population growth (thousands).
1951 -1 952 to 1987-1 988
year
I I
I
Pop. change - - - - - Natural increase - - - - - - - Net migrationI
Source: Statistics Canada (1990), Postcensal Annual Estimates of Population by Marital Status. Age, Sex, and Components of Growth for Canada, Provinces, and Territories, June 1, 1989. Catalogue 91-210. Ottawa: Supply and Services Canada.
Figure 5
Labor force participation rates (percent) by gender: 1971,1981, and 1986
age group
-
fem. 1971-
fem. 1981-
fem. 1986mal. 1971
-
mal. 1981*
mal. 1986Source: Statistics Canada (1989), 1986 Census of Canada - Activity, Catalogue 93-1 11 Ottawa: Supply and Services Canada.
Figure 6
Female labor force participation rates (percent) by marital status, 1986
age group
never married
-
married ---r--- widowed/divor allced
Source: Statistics Canada (1989), 1986 Census of Canada - Activity, Catalogue 93-1 11.
Ottawa: Supply and Services Canada.
Figure 7
Cumulative distribution of new CIQPP retirement pensions by age: July-September 1989
males - - - - - females
~
Source: Health and Welfare Canada, Income Security Programs - Monthly Statistics, Ottawa (various monthly issues).