Canada will have to increase the number of immigrants allowed into the country by about 100,000 per year in order to boost productivity and help pay for pensions, the Conference Board of Canada’s chief economist said Tuesday.
The government will have to implement a very active immigration policy to grow the workforce, increase the number of workers making pension contributions and help offset the effects of an exodus of baby boomers from the labour market, Glen Hodgson told an audience at the Board’s 2010 Summit on the Future of Pensions.
Hodgson predicted slow labour force growth in the coming decades, meaning there will be fewer workers contributing to pension plans but more retirees drawing from them.
“We’re a much older country, we’ll have fewer workers coming in to feed the system . . . that’s going to suck the life out of our economy. Slower labour force growth means slower economic growth,” he said.
Governments and the business world are struggling to head off a potential crisis borne of a rapidly aging workforce that is not putting aside enough for retirement. Federal Finance Minister Jim Flaherty is currently on a cross-country tour to talk to Canadians about how best to reform the pension system.
As an older population and smaller families become the norm, immigrants–about 250,000 are currently allowed to enter every year–will be the only source of population growth in Canada at some time around 2030, Hodgson said.
While strong immigration alone will not reverse Canada’s aging trend, it will help keep population growth stable around one per cent per year.
Hodgson said governments will need to implement policies that boost productivity, including developing an integrated immigration policy, investing in a more skilled workforce, and increasing the labour force by encouraging older people to work longer.
“There may be some sort of informal market developing, where people formally retire and then informally find a way to (keep working),” Hodgson said.
The average retirement age in Canada is exceptionally low, he said. But Canada should aim to avoid measures such as those taken in Japan to raise the age at which workers can access government-sponsored retirement plans, Hodgson said.
While the recession impaired Canada’s growth potential, a survey conducted by the board earlier this year found that the economic downturn did not significantly affect the age at which Canadians plan to retire, Hodgson added. Only one person in three said the recession made them think about delaying retirement.
“We can’t rely on the recession as an excuse for prolonged retirement . . . we can’t rely on the backlash from the recession as a way to keep our economy growing,” Hodgson warned delegates at the think-tank’s annual pension summit.
Pension plans have been beset by years of funding problems and were further savaged by the recession. Concern about retirement income has soared recently, in part because savings took a big hit with the downturn in financial markets last year but also because fewer companies offer defined-benefit plans that pay a set amount on retirement.