Transitioning Toward Retirement:

Observations and Outlook

Pierre-Carl Michaud Industrial Alliance Research Chair for the Economic Challenges of

Changing Demographics Retirement and Savings Institute, HEC Montréal

November 2018 with David Boisclair, François Laliberté-Auger,

Maxime Juckenack-Mellinger and Jeiel-Onel Mezil

Agenda

The changing face of retirement in Quebec

Challenges to monitor: Is delayed retirement desirable? Health and the ability to work

What is the future for retirement?

The Changing Face of Retirement in Quebec

The Many Paths to Retirement

Key points entailing changes to employment status:

� Start of SPP benefits (often before age 60)

� Eligibility for a QPP retirement pension

� Old Age Security (and GIS)

� Disability and other conditions prior to age 65

Older Workers

Figure – Statistics Canada, Table 14-10-0018-01

Employment Rate Evolution in Quebec (Men and Women)

Years

Empl

oym

ent

Rat

e

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Start of QPP Benefits (Men and Women)

Age

Tran

siti

on

Per

cen

tage

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Evolution of the Starting Age of QPP Benefits (Men and Women)

Tran

siti

on

Per

cen

tage

Age

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Age

Tran

siti

on

Per

cen

tage

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Age

Tran

siti

on

Per

cen

tage

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Age

Tran

siti

on

Per

cen

tage

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Tran

siti

on

Per

cen

tage

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Age

Evolution of the Starting Age of QPP Benefits (Men and Women)

Tran

siti

on

Per

cen

tage

Application for QPP

Pensionsente RRQ

Figure – Retraite Québec

Evolution of the Starting Age of QPP Benefits (Men and Women)

More than 60 years old

Tran

siti

on

Per

cen

tage

Year

Application for QPP

Pensionsente RRQ

Figure – Statistics Canada, LISA

Age

Pro

bab

ility

CPP 1990-1999 QPP 1990-1999

QPP/CPP Benefits

Application for QPP

Pensionsente RRQ

Figure – Statistics Canada, LISA

Age

Pro

bab

ility

CPP 1990-1999 QPP 1990-1999 CPP 2000-2011 QPP 2000-2011

QPP/CPP Benefits

Figure – Statistics Canada, LISA

Employment Termination

Employment Termination

Pro

bab

ility

CPP 1990-1999 QPP 1990-1999

Age

Figure – Statistics Canada, LISA

Employment Termination

Employment Termination

Age

Pro

bab

ility

CPP 1990-1999 QPP 1990-1999 CPP 2000-2011 QPP 2000-2011

Retirement Reasons

Figure – Statistics Canada, General Social Survey

Retirement Reasons for Retirees General Social Survey 1994-2007, Age 68+

Women Men

Health Mandatory Anticipated Technology Unemployment Health Mandatory Anticipated Technology Unemployment

Retirement Reasons

� Increased number of disability pensions

� Increased prevalence of RRSP withdrawals to fund (early)

retirement

� Observed stable tendency to re-enter the workforce

Reasons for Re-entering the Workforc Of those not working at the age of 59, only 13% re-enter the workforce (LISA, 1990-2011)

Reasons for Re-entering the Workforc Of those not working at the age of 59, only 13% re-enter the

workforce (LISA, 1990-2011)

Figure – Statistics Canada, General Social Survey

Reasons to re-enter Workforce General Social Survey 1994-2007

Women Men

Financial Help Health Offers Dislike Financial Help Health Offers Dislike

Challenges to Monitor

Agenda

The changing face of retirement in Quebec

Challenges to monitor: Is delayed retirement desirable? Health and the ability to work

What is the future for retirement?

Gains from Delayed Retirement

{ } −

GAINt (r ) = max PV(BENEFITa, r) PV(BENEFITt , r ) a>t

� Mortality (Statistics Canada projections)

� Federal benefits gains test (SimTax)

� Provincial and federal tax gains (SimTax)

Without Tax Effect (Optimal Age)

Figure – Calculations: iA Chair with SimTax and SIMUL

SPP

Inco

me

(Mu

ltip

le Y

MP

E)

QPP Income (Multiple YMPE)

Figure – Calculations: iA Chair with SimTax and SIMUL

With Tax Effect (Optimal Age)

SPP

Inco

me

(Mu

ltip

le Y

MP

E)

QPP Income (Multiple YMPE)

Figure – Calculations: iA Chair with SimTax and SIMUL

Without Tax Effect (Gains in Thousands)

QPP Income (Multiple YMPE)

SPP

Inco

me

(Mu

ltip

le Y

MP

E)

Figure – Calculations: iA Chair with SimTax and SIMUL

With Tax Effect (Gains in Thousands)

SPP

Inco

me

(Mu

ltip

le Y

MP

E)

QPP Income (Multiple YMPE)

Figure – Calculations: iA Chair with SimTax and SIMUL

Tax Effect

QPP Income (Multiple YMPE)

SPP

Inco

me

(Mu

ltip

le Y

MP

E)

Figure – Calculations: iA Chair with SimTax and SIMUL

Without Age Credit

SPP

Inco

me

(Mu

ltip

le Y

MP

E)

QPP Income (Multiple YMPE)

Who Applies at Age 60? Regression of the probability of application at age 60 among those

aged 59 (LISA, 1984-2011)

Figure – Impact on probability of pension application at age 60

Ben

efit

Pro

bab

ility

Eff

ect

at 6

0

Who Applies at Age 60? Regression of the probability of application at age 60 among those

aged 59 (LISA, 1984-2011)

Figure – Impact on probability of pension application at age 60

Ben

efit

Pro

bab

ility

Eff

ect

at 6

0

Other Changes to Monitor

� Pension supplement

� Actuarial increase/decrease

� Employment termination no longer a concern

� Increased credit for experienced worker

� Plan improvement

Agenda

The changing face of retirement in Quebec

Challenges to monitor: Is delayed retirement desirable? Health and the ability to work

What is the future for retirement?

Longer Lifespans and the Ability to Work

� Longevity is on the rise

� Implications for health (e.g., chronic illness)

� What could the future hold for experienced Quebec

workers?

Projected Changes in Workers’ Health

Figure – COMPAS projections for ages 60-69

Pre

vale

nce

Prevalence Projection, Age 60-69

Year

Cancer Diabetes Respiratory Cardiac Stroke Cognitive Disability

Ability to Work

Work determinants (ESCC 2014) applied to COMPAS projections

Ability to Work

Work determinants (ESCC 2014) applied to COMPAS projections

Figure – COMPAS projections of ability to work

Work Projection, Ages 60-69 (Fixed Education 2018) W

ork

Fra

ctio

n

Year

Work Fraction

What is the future for retirement?

The Future for Retirement

There are reasons for optimism, though the future is uncertain. Positive signs:

The Future for Retirement

There are reasons for optimism, though the future is uncertain. Positive signs:

� Employment rates of older workers should continue to rise

� Tax changes and favourable plans (tax credits, pension

supplement)

� Potentially lighter penalties (GIS/OAS)

The Future for Retirement

There are reasons for optimism, though the future is uncertain. Positive signs:

� Employment rates of older workers should continue to rise

� Tax changes and favourable plans (tax credits, pension

supplement)

� Potentially lighter penalties(GIS/OAS)

Negative signs:

� Chronic illness among older workers

� A changing workplace (adjustment to technological change)

� Low level of financial literacy makes it difficult to access

increased incentives