Is age 70 or 75 becoming the new 65?

I was in Washington, DC last week speaking on the impact demographic change is having and will continue to have on workplaces.  After the “Global Economic Crisis” and severe recessions in many countries, there is evidence that workers delaying retirement and even re-entering the labour force.  Demographic changes is also having an impact on the supply of qualified younger workers to take the place of older workers poised to exit the labour force. 

In preparing my remarks I came across a blog post by Alicia H. Munnell  on The Wall Street Journal’s Market Watch site entitled, “Social Security’s real retirement age is 70” [October 23, 2013].  She writes:

Social Security’s retirement age is 70.  The simple fact is that monthly benefits are highest at age 70 and are reduced actuarially for each year they are claimed before age 70.  This is a relatively new development, which may explain why Social Security’s retirement age is the best-kept secret in town.  But I think it’s time we told folks.   And then we need to clarify what all this talk about raising the so-called full retirement age really means.

US Social Security and the Canada Pension Plan (CPP) are similar in many ways.  CPP also provides the greatest benefit to those who postpone receipt to age 70. Yes, 65 is still the reference year for retirement but waiting has its rewards and these are increasing.   From 2011 to 2013, the Government of Canada has gradually increased the incentive to delay collecting CPP.  As of this year, 2013, if you start receiving your CPP pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at 65. 

Put another way, if you assume the point of view of age 70 as the reference year at 100%, then retirement at age 65 has an initial monthly CPP payment of only 70.4% of the monthly amount at age 70.  Because CPP is also increasing the “penalties” for retiring early, in 2013, a 60 year old retiree would get only 47.6% of the retiree delaying receipt of CPP to age 70. 

Now, for many people the incentive or penalty is irrelevant.  Health and income may simply make delaying receipt of CPP out of the question.  For others, particularly those that are in relatively good health and who may have invested heavily in education before starting work, work beyond age 65 may be a necessity.  The employment rate of for males 65 and over with a university degree was 25.3% in 2012.  For those 65 and older with educational attainment above a bachelor’s degree, the employment rate was nearly 30% in that year.  Both the employment rate and actual numbers of these older workers is increasing.  [CNSIM Table 282-0004 Canada, Employment rate by Educational Attainment for selected age groups 2012].

Canada and the US are well above the OECD average for life expectancy.  The life expectancy and labour force participation rate for those over the age of 65 are also above average-- and rising-- but still below  life expectancy and participation rates in some countries such as Sweden.  Sweden’s centre-right  Prime Minister,  Fredrik Reinfeldt , recently put it bluntly:  Swedes should be prepared to work until they are 75 and to change careers in the middle of their work life if they are to keep the welfare standards they expect.  He also note that half of today's children in Sweden can expect to become 100 years old and there has to be a change in the way the Swedes view their work life.

The point is simply this:  we are seeing and will continue to see more workers aged 60, 70 and older in our workplaces.  We need them.  Work is good for their health and well-being.  They want to work –some for the money but many for social and mental stimulation reasons.   It is time to rethink policies and attitudes that fail to appreciate this changing reality.  

Workers’ compensation and Social Insurance Disabilty

In much of the world, workers’ compensation is part of larger social insurance schemes. In Canada amd the US, social security systems are separate from workers’ compensation but there can be overlaps in coverage and varying treatments on the benefits payable.

On the contribution side, workers and employers are generally required to contribute to a social security system. In Canada, that system is called the Canada Pension Plan (CPP) in most of Canada and the Quebec Pension Plan (QPP) in that province. In the US, the Social Security system fulfils this role. Each of these plans has its own provisions for cases involving disability. In the case of the Canada Pension Plan, an individual with a condition that is ‘Severe and Prolonged’ may be eligible for a benefit from CPP Disability.

A worker who develops a debilitating condition not related to work may collect from the appropriate social insurance plan. Where the condition or injury that gave rise to the disability is work related, the worker may or may not have eligibility under both the social insurance disability plan and the appropriate workers’ compensation legislation.
Where workers’ compensation and social insurance are both potential payers, there are three main public policy alternatives:

• Fully stackable- the worker may collect from both plans
• Fully integrated- the worker collects full entitlement from one plan (the ‘first payer’) and an amount equivalent to the full entitlement from the other plan less anything payable from first payer
• Partially integrated- The worker’s entitlement to one plan is reduced or ‘offset’ by some portion of the entitlement of the other insurance.

Currently, workers in British Columbia experience a partially integrated system whereby WorkSafeBC deducts 50% of the applicable CPP disability benefits from a worker’s permanent disability award where the injury occurred on or after June 30, 2002. Of course, this only applies if the worker is eligible for CPP Disability. Workers with a job-related injury in Quebec, however, go to the CSST (Quebec’s workers’ compensation system) and cannot apply to the Quebec Pension Plan.

In the US, the offset usually works the other way around. According to the National Academy of Social Insurance’s fact sheet of the topic:

An offset for concurrent receipt of workers’ compensation was contained in the original 1956 Social Security disability program, eliminated in 1958, and reinstituted in 1965. The 1965 Social Security Amendments required that Disability Insurance benefits be reduced when the worker is also eligible for periodic or lump-sum workers’ compensation payments, so that the combined amount of workers’ compensation and Social Security disability benefits does not exceed 80 percent of the worker’s average current earnings. The combined payments after the reduction, however, will never be less than the amount of total Social Security disability benefits before the reduction …Under the 1965 law, the Social Security disability benefit will not be reduced if the state workers’ compensation law or plan provided for a reverse offset (a reduction of the workers’ compensation benefit of a worker also receiving Disability Insurance).

Each of the public policy alternatives has its pros and cons. There is no one right way to provide workers compensation and social security benefits. It is important, however, to be mindful of the interplay between the two systems when considering either a change in public policy or comparing benefits across jurisdictions.