Thursday, July 7, 2011

More about older workers, incentives to work to an older age

My post from April 12 on Canada Pension Plan (CPP) changes generated some discussion.  I received quite a few questions on the likely impact the changes and the apparent rise in the numbers of older workers in the labour force will have on our organization. 

You may recall that CPP retirement benefits have changed.  Up until last year, someone expecting to retire at age 65 with a CPP monthly benefit of $900 could take the pension as early as age 60 but the pension amount would be reduced by 30%.  The same person could also choose to delay taking CPP.  For every month beyond the month that person turned 65, the pension amount would increase to a maximum at age 70 of 30% more than the base amount at age 65.  Starting this year, the penalties for taking CPP early and the incentives for delaying taking a pension are increasing.  By 2016, the “penalty” for taking CPP at age 60 will be 36% while the “bonus” for waiting to age 70 will be  increase to 42% in 2013. 

Not every worker will delay starting their CPP to age 70 but the financial incentives to do so are attractive.  Using that hypothetical case of someone with an eligibility at age 65 of $900, taking the pension early when the changes are fully in effect will reduce the monthly pension at age 60 to just $576 while waiting to age 70 will see the monthly amount rise to $1278.  As long as the worker still has enough income from employment or other sources, the incentive to keep working to age 70 looks pretty attractive. 

After my earlier posting on this, the number one question I was asked was, “Which is the better thing to do, take CPP early or to delay?”  If the answer is clearly in favour of delaying, more workers are likely to continue working past age 65.  As with almost all such questions, the best answer will depend on individual circumstances.  Health, family issues, living costs, financial resource, life expectancy, taxation situation and other effects will certainly come into play.

A BMO Retirement Institute report put it this way:
One can calculate the “break-even” or “cross-over” point at which one choice proves to be more advantageous, in terms of lifetime earnings, than the others. While it is impossible to predict life expectancy, to put it in perspective, individuals whose life expectancy does not exceed age 73 would be better off drawing their CPP at age 60 – notwithstanding the 36 per cent reduction in benefits under the new rules. Conversely, those who live beyond 81 would be better off drawing their pension at age 70 and taking advantage of the 42 per cent increase in benefits. For everyone in between, the best choice is to draw one’s pension starting at age 65.

If life expectancy is age 90, the report calculates that  “. . . the person who began drawing CPP at age 70 will collect about $100,000 more from the CPP than the early retiree who began collecting CPP at age 60.”  For many, this may constitute an attractive incentive to continue in the labour force to age 70.

The next most common question I was asked concerned what is actually happening out there in the labour force: “Are more workers actually working beyond the age of 65?”  To find out the answer to this question, I downloaded data from Statistics Canada based on the Labour Force Survey.  The time series looks only at workers age 65 and older.  I split the workers into full and part-time categories.  I got the following:

[caption id="attachment_232" align="alignnone" width="450" caption="Workers 65 and over by employment type Jan 1996-Jan 2011 Canada"]Workers 65 and older in Labour Force - Canada[/caption]

As you can see, the lines were relatively flat between 1996 and 2001.  Since then, however, we have more than doubled the number of full-time older workers, and tripled the number of older part-time workers.  What’s fascinating to me is that this chart does not reflect the baby-boom generation.  By definition, that generation was born in and after 1946.  Add 65 to 1946 and you get 2011; the first baby-boomers are just turning 65 this year.  Even if the participation rate among the post-65 population were to remain flat, the sheer volume of people entering that category over the next few decades will see this upward trend continue.

Finally, I was asked, “What are the implications for prevention and compensation?”  I think it is pretty clear we are going to see an increased number and proportion of older workers in the labour force.  Older workers are more vulnerable to a somewhat different array of work-related injuries than their younger counterparts.  The severity of injuries among older workers is often elevated, because of other conditions like diabetes and obesity that complicate treatment and prolong recovery.  A recent presentation by NCCI provided the top ten diagnosis codes, amongst younger and older workers with lost-time claims paid for temporary benefits closed within 24 months of the date of injury, for accident year 1996-2007 for NCCI states.  The nature of these injuries is indicative of the vulnerabilities as we age, and provide some indication of where prevention efforts should be directed.

Ages 20—34Ages 45—64
 1.       Sprain Lumbar Region2.       Lower Leg Injury, not otherwise specified

3.       Sprain of Ankle, not otherwise specified

4.       Unilateral Inguinal Hernia

5.       Cervicalgia

6.       Lumbar Disc Displacement

7.       Carpal Tunnel Syndrome

8.       Lumbago

9.       Sprain Lumbosacral

10.   Sprain of Neck
 1.       Sprain Rotator Cuff 2.       Unilateral Inguinal Hernia

3.       Carpal Tunnel Syndrome

4.       Tear Medial Cartilage/Meniscus of Knee

5.       Lower Leg Injury, not otherwise specified

6.       Sprain Lumbar Region

7.       Cervicalgia

8.       Rotator Cuff Syndrome, unspecified

9.       Lumbar Disc Displacement

10.   Lumbosacral Neuritis, not otherwise specified

While the largest proportion of injured workers will continue to be in their thirties and forties, the combination of fewer younger worker injuries and increasing numbers of older worker injuries will result in an overall increase in complexity, and upward pressure on duration and medical costs. 

If "70 is the new 65," awareness and sensitivity to the vulnerabilities of older workers will have to increase.