As the baby boom generation grows older they are expected to drive up the cost of the Old Age Security (OAS) program, more than doubling basic OAS pension expenditures by 2030.
The Office of the Chief Actuary, a unit within the Office of the Superintendent of Financial Services that provides actuarial valuation and advisory services to the federal government, has released a report on the state of the Old Age Security program.
The number of younger people compared to the number of older people is expected to decrease dramatically. The report predicts the ratio of those aged 20 to 64 to those aged 65 and over will fall from about 4.1 in 2013 to 2.2 in 2050.
"The number of beneficiaries of the OAS basic pension is expected to increase by 60% within the next two decades, growing from 5.3 million in 2013 to 8.4 million by 2030, mainly due to the retirement of the baby boom generation over that period," reads the report. "OAS basic pension annual expenditures are projected to increase from $33 billion in 2013 to $74 billion in 2030 and $144 billion by 2050."
The report also predicts that the number of Guaranteed Income Supplement (GIS) and allowance beneficiaries is expected to increase by 60% within the next two decades, growing from 1.8 million in 2013 to 2.9 million by 2030. This is due in part to the adoption of Tax Free Savings Accounts (TFSAs).
Unlike income from Registered Retirement Savings Plans (RRSPs), withdrawals from TFSAs are not included in taxable income or eligibility calculations for the GIS. As a result, the actuarial report predicts that the GIS recipient rate will slowly increase from its current level of 32% to 34% by 2030. However, this rate is expected to fall back to 31% by 2050 as the baby boom generation passes away.
The actuarial projections suggest that GIS annual expenditures will increase from $9 billion in 2013 to $20 billion in 2030 and $36 billion by 2050. As for the OAS program's total annual expenditures, they are expected to rise from $43 billion in 2013 to $96 billion in 2030 and $181 billion by 2050.
"The ratio of expenditures to the GDP is projected to be 2.3% in 2013, which is similar to what the ratio was in 1980. After 2013, the ratio is projected to reach a high of 2.8% in 2033. This level is somewhat higher than the historical peak of 2.7% reached in the early 1990s," reads the report. "After 2033, the ratio of expenditures to GDP is projected to slowly decrease to a level of 2.4% by 2050. This reduction is attributable to expected slower growth in inflation compared to growth in wages and the GDP."