Theme One: Systemic forces pushing toward a new agenda for reforms in institutional policies and practices

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  • Baby boomers are likely to reach retirement with lower and less stable pensions than in the past. The need to supplement these pensions will certainly be another reason for some people to continue working after retirement.
  • In Canada there is a factor that may partially mitigate the severity of the problem that funding our social protection programs represents for the government. For many years, the government was deprived of revenue because of tax reductions given to employers and workers who were saving for retirement. With droves of new retirees who have taxable pensions, this tax expenditure will turn into greater tax revenue.
  • Our retirement system rests largely on a tacit contract between generations. This contract is based upon the principle of a division of the life cycle into three phases - first the phase when youths are educated, another when young adults and adults work, and finally when the elderly have the right to retirement. However, we have entered into a knowledge-based society in which the traditional patterns of the social organization of age and time are challenged in our new society of mobility and longevity.
  • A 50-year-old Japanese or Swedish worker remains in the labor market until an advanced age, yet this is not the case in continental European countries. This means that at the same chronological age, salaried workers are treated differently and valued differently in different countries. Thus we should not regard the depreciation of the aged wage earner as natural. Instead it should be interpreted as a product of culture.
  • The processes by which each political configuration builds a specific culture of age, which tends to shape professional pathways associated with advancing age, may be grouped into four types:
  • Type 1, marginalization/relegation, is clearly illustrated in the countries of continental Europe and especially in France. It combines a generous indemnification of the risk of non-work for the older employee with a relative absence of instruments of integration or reintegration into employment of wage earners, and focuses on a principle of financial compensation for the loss of employment among salaried workers who are advanced in age.
  • Type 2, integration/reintegration into the labor market, evokes the Scandinavian regime of social protection. In this type, the generous indemnification of the risk of non-work in the second part of the career is closely linked to the mobilization of an active employment policy. Its aim is to target the aged wage earner through interventions toward rehabilitation and reinstatement into employment, in order to respect their right to work.
  • Type 3, maintenance in the labor market, is illustrated in the case of Japan. It varies from Type 2 because it offers aging wage earners few possibilities of indemnification of an early exit from the labor market. There is, for Japanese employees, no alternative to active aging, which is considered as desirable for the individual as for society.
  • Type 4, rejection/maintenance, combines limited benefits concerning the risks of non-work with a few instruments of integration into the labor market. In this configuration, the largest part of regulation is left to the market. Depending on developments in the labor market, one will observe pathways of rejection of older workers in the labor market or, on the contrary, in case of shortages in the labor force, the pathways of maintenance in the labor market. These pathways will directly result from the forces of supply and demand on workers in the market. British or American cases are fairly illustrative of this configuration.
  • Social security systems in mature industrial economies are typically committed to at least three basic values: the economic well-being of retirees, the productivity of firms and individual self-reliance. Conflicts among these values tend to be addressed through the art of separation - each of the values is associated with different institutional "pillars". However, interaction among the institutions leads to linkages. "Linkage" refers to the manner in which decisions taken in an institution influence those made in others. (In the context of social security, such decisions determine who is eligible for benefits and what amount they can receive from different institutions.) Because linkage is in some sense the precise opposite of separation, in its strongest forms it eventually undermines the division of labour among the institutional sectors. We describe this collapse of the art of separation as "blurring" of the separated spheres. A separated system has blurred when the commitment of each institution to a particular, limited set of principles or values falters.
  • In the Canadian pension system, there is blurring among the public and the private pension pillars. This blurring can be observed in at least two respects: funding; and state-imposed standards on coverage, investment, and management of pension plans. Between the public pension pillar and the private pension pillar, blurring occurs in terms of the increasing role of private pensions in the Canadian retirement system and the shift towards individual accounts. Blurring also occurs in the investment of Canada Pension Plan (CPP) funds in a broader range of securities, including equities. These investments are managed by an independent board - the CPP Investment Board.
  • An unanswered question is whether the aging of Canada's population over the next quarter century will create the necessary conditions to drive the retirement age back towards age 65 or even higher. Public policy is one means to achieve this result. Governments have two strategies to pursue. The first involves raising the age at which employees can first access their C/QPP benefits, currently set at age 60. The second would involve new policies to regulate the age at which workers can access their occupational plans (RPPs) and personal retirement accounts (RRSPs). However, there is little historical precedent for regulating these quasi-private financial vehicles (RPPs and RRSPs) to achieve a collective good. Also, placing retirement policy at the centre of a "new social agenda" would take place in the domain of federal-provincial relations. Barring a truly large exogenous shock such as long-term economic decline, it is difficult to imagine from where a new political consensus sufficient to drive a new federal-provincial social agenda will come. A more likely prospect is that pressures for change will come from the market, as employers respond to a reduced supply of younger workers with wage incentives and steps to improve working conditions for older workers.
  • For economists and many decision-makers strictly concerned with the financial integrity of pension funds, the focus of individual efforts and collective measures is upon finding ways to get people to work longer. However, this view is far from unanimously shared among our peers. Paid work is only one of many possible components of life, at any stage of the life cycle. Family life, cultural and leisure pursuits, civic functions, and volunteer work are also important to the balance of people's lives. Producing a change in the length of time that people work can only be done after an analysis of what really happens in people's later lives, especially in the personal and family sphere.
  • Theme Two: Family and gender, two dimensions for major changes of theory and analytical perspectives concerning retirement-related behavior

    • Women's lives already are, and will continue to be, typified by multiple transitions in and out of the labor force, with employment in more than one job that is often a contingent, nonstandard job. Their work will probably continue to be segregated in the feminized sector of the economy where they are likely to receive lower wages. These irregular work patterns certainly do not match the structure of the current pension system which was developed to meet the needs of the nineteenth century male worker who was a lone breadwinner supporting a large family. The pension system today emphasizes job tenure in a life-long career job.
    • The basic argument is that the "new" retirement is women's retirement. Women's retirement has always been different from men's and will continue to be different for the foreseeable future, despite arguments to the contrary. This observation applies to the baby boomers and the generation of younger women following in their wake. Women's transition to retirement and their material conditions in retirement are a direct result of gender relations as they play out in work and the family over the life course. These relations are, in turn, tempered by the intersection of race, class and sexual orientation within a particular historical era.
    • Retirement transition processes are contingent on contexts (work, marital, familial) that define individuals' experiences in specific roles. These contexts are connected (interdependence of work and family spheres). Family contexts consist of marital and family characteristics that precede the retirement transition and can impinge on retirement decision and adaptation processes. They include family-related statuses, spouse characteristics and activities, the quality of relationships, and norms/attitudes. The influence of these contexts on retirement transitions may be either direct (e.g., wives tend to retire earlier if their husbands' retirement precedes their own) or it may be indirect.
    • Past research offers some insights into family contexts that influence retirement decisions but provides little information on the interplay between family contexts and policies in retirement transition processes. How and under which family circumstances individuals retire will affect post-retirement family activities and relationships as well as retirement outcomes, again contingent on policies.
    • Many of the characteristics that one might associate with greater economic independence among women are negatively correlated with expectations of joint retirement. Women in managerial and professional occupations, those with pension coverage, and those who contribute most of the household income are more likely than others to view the timing of their retirement in an autonomous manner vis-à-vis their spouses. Furthermore, many of the characteristics associated with expectations of joint retirement among women are not significantly correlated with such expectations among men. This is consistent with the view that women and men approach retirement in different ways
    • A cohort of well-educated, dual-earner couples at the top of the earnings distribution in Canada is now poised to make the transition into retirement. Increasingly, Canadian couples must make two retirement decisions rather than just one.
    • As to the types of trajectory followed, about the same proportion of men and women followed an involuntary trajectory (22% and 20%, respectively), but a larger proportion of men than women did not complete the trajectory before the end of the observation period. This seemingly tends to confirm the hypothesis that men are more likely to remain in the labor market, even after experiencing events that may have disrupted their activities in the labor market.
    • The results of the regression analysis show that retirement really is different for women than for men. We note this in the comparison of the structure of estimated parameters of the models for both sexes, where we encounter major variations. We are thus of the view that in order to better understand the dynamics of retirement for women, researchers should avoid including both sexes in a single statistical model.

    Theme Three: Increasing diversity of transitions typical of later life

    • While the general tendency of the self-employed to retire later is well known, we have added, for Canada, a measure of the degree of difference between the self-employed and the salaried in connection with the probability of closing trajectories soon after beginning the transition to retirement, and another concerning the probability of having unclosed trajectories four years after the transition began. (A trajectory is said to be "closed" when for six consecutive months at the end of the six years of observation, the person was outside the labor market and was receiving some kind of retirement-related income.) In the bivariate analysis, we estimated a minimum 20-percentage-point gap between the two groups in terms of concentration at either end of the spectrum of speed of closure, if one limits observations to persons aged 55 to 69 in 1996. In the whole sample aged 45 to 69, when several related covariates are held constant statistically, the gap falls to nearly 10 percentage points at the extreme of fast closure and to five percentage points at the opposite extreme of non-closure.
    • While close to 75% of the self-employed had trajectories with Low levels on the index of flexibility in the transition to retirement, the figure for employees is in the neighborhood of 85%. The pattern of differences between the two classes of workers recurs in the multivariate analysis.
    • The index of vulnerability focuses on job loss or involuntary job change. Wage and salary earners are more likely than the self-employed to have trajectories with Medium or High levels on the index of exposure to events that increase risk of reduction in standard of living in retirement (the "index of vulnerability"). The margin of the difference is substantial but not great. However, key sub-groups of sex, age and education repeat the pattern of difference just cited, and the pattern is seen again in the context of multivariate analysis.
    • Since uncertainties in the flow of income in retirement may be unusually high among the self-employed, compared to the salaried, it is expected that they will be more likely to return to the labor market after leaving it. This is precisely what our data show. However, the sub-sample of those that left the labor market at some time during 1996 and 1997 is too small to provide a reliable measure of the magnitude of the difference between the two classes of worker.
    • As regards patterns in speed of closure, among those that started their work-to-retirement transitions between 1996 and 1997, there is a divide between those younger than 60 in 1996, and those aged 60 or more. Among the former, public-sector employees were more likely, than their private sector counterparts, to have closed their trajectories before the end of 2001. However, this pattern is reversed among those aged 60 or more in 1996. In this group, speed of closure was slower for the public sector employees - they tended to stay longer in the labor market.
    • Public sector employees are more likely, than their private sector counterparts, to have either Medium or High levels of the index of flexibility in the transition process. However, the advantage for public-sector employees is concentrated at Medium values of the index; because at the High values both sectors' trajectories tend to have similar percentages.
    • The index of exposure to events that increase risk of reduction in standard of living shows the two sectors with very similar levels of concentration at the Low level; both being in the vicinity of 85% (Chart 16.5). The public sector employees in transition to retirement have a slightly higher concentration at the Medium or High levels. However, this slight divergence disappears when we resort to the much larger sample of all persons aged 50 or more in 1996.
    • A substantial proportion of the determinants of speed of closure are unaffected by the working environment or by corporate policies. This means that corporate policies and work environments should be expected to have quite limited influence on speed of closure of the trajectory of transition to retirement. In the light of this limited influence, the following questions arise in the context of related policy deliberations: How far can policies succeed within the margin of possible influence that is available? And is this limited success worth the cost of achieving it?
    • Over the study period, there was a trend of rising career instability, evidenced by increased frequency of persons with at least one jobless spell.
    • Both the survival and the Generalized Estimating Equation (GEE) models showed that career instability was significantly associated with a long-term health condition, even after controlling for age, sex, marital status, income and education. These findings are consistent with the results of three studies based on different data files.

    Theme Four: New vulnerable groups concerning living standards in the retirement years

    • Women are more likely than men to be employed in non-standard work arrangements. This will have an important bearing on their plans for retirement, their ability to save, the likelihood of their belonging to a workplace pension plan, and their financial security as they grow old. In 2003, for example, when women accounted for 47% of total employment of people aged 15 and older in Canada, they were 54% of total non-standard employment. Forty per cent of women's jobs compared with about 29% of men's jobs in 2003 were considered "non-standard."
    • Given the lack of coverage of workplace pension plans and the difficulty of accumulating private savings for retirement among those who tend to have non-standard employment, public pension programs are particularly important for those who spend periods of their paid employment in non-standard work arrangements. The monthly benefit they eventually receive from the Canada Pension Plan (or Quebec Pension Plan in Quebec) may reflect periods of low earnings experienced during their years of paid employment.
    • While much of the commentary on the improved income situation of Canadians aged 65 and over attributes the improvement to the strength of the Canadian retirement income system, what is often overlooked is the way in which the third pillar has interacted with a very specific set of economic circumstances to produce both the positive absolute and relative situation of the elderly. High rates of return on financial assets during the 1980s and 1990s benefited all parts of the third pillar. Investment returns of defined benefit plans easily exceeded the rate assumed by plan actuaries when calculating plan liabilities. But rates of return on financial assets declined precipitously from mid-year 2000 to the early part of 2003. Workplace pension plans now face financing difficulties. Furthermore, the change in financial markets that produced the defined benefit crisis was affecting defined contribution plans as well. The difference, however, is that individual plan members rather than employers have borne the brunt of the impact on defined contribution (DC) plans. A larger share of the future elderly will have their workplace pension incomes more directly exposed to investment risks at or around the date of retirement.
    • Along with these developments, there has also been a decline in the percentage of employed people who belong to any type of workplace pension plan. Given the role that workplace pensions play in the retirement income system, their overall contraction is likely to manifest itself in more older Canadians with low incomes, and in fewer people stating that their standard of living is as good as it was during their employment. It will also be reflected in fewer people being able to retire comfortably before age 65.
    • Past studies of diversification of retirement income have often been limited to theoretical or qualitative research. A chapter develops a new index of diversification of retirement income in Canada to serve as the basis for a quantitative analysis of the years between 1980 and 2002. Over the years, the family, the state and the market have all played a role in retirement security. But the relative importance of the contribution of these various elements has changed. Older women living alone, for example, used to depend mainly on government transfers and investment income, now they depend more on pension income. This group within the population benefited from the maturation of both the public and private pension systems during the period under review. But while diversification of the income sources of older women living alone has improved, it is still much lower than that of the general population of elderly Canadians.
    • Among older immigrants, on the other hand, the diversification of income sources is close to that of the general population of older people. Income from employment was the major source of income for older immigrants throughout the period from 1980 to 2002. This group has not benefited as much from the maturation of public and private pension systems.