What’s So Special About 65?

Conspicuously missing in the uproar about Old Age Security is the most basic question: Why do we have a publicly funded retirement pension? Let’s answer that. Then we can talk about when the age of eligibility should be.

German Chancellor Otto von Bismarck established the first such public pension scheme, in 1889. It was part of a package that included health and accident insurance for workers.

For Bismarck, the purpose was to undermine the appeal of socialism. For German workers, it was security in a world that offered little.

Work conditions were horrific. Sixteen-hour days. Six-day weeks. Workplaces that routinely mangled workers’ bodies and robbed their health.

And a worker who couldn’t work had no safety net beyond charity. An accident or a disease could easily mean abject poverty, even starvation. So could old age.

The age of eligibility for Bismarck’s pension was 70. At the time, life expectancy for the average 70-year-old male was less than 10 years. And they weren’t healthy years. “Morbidity rates” – the prevalence of disease or infirmity – were appallingly high. For the average 70-year-old, it was a nightmarish struggle to work for 16 hours a day, six days a week, in farm field or a filthy, dangerous factory. So Bismarck’s pension was a godsend.

A quarter-century later, Germany reduced the age of eligibility to 65. But the idea remained the same: It was disability compensation in all but name.

Bismarck’s reforms were immensely popular. And influential.

In Canada and the United States, provinces and states set up old-age pensions early in the 20th century. Some used 70 as the age of eligibility. Others 65.

In 1937, when the U.S. federal government created social security, 65 was the age of eligibility. In 1952, Canada’s federal government created Old Age Security. The cut-off was 70. That was reduced to 65 from 1965 to 1969.

Between Bismarck and Lester Pearson, and between Pearson and now, the world of work changed almost beyond description. Hours on the job fell by more than half. We got weekends and paid vacation. Our workplaces became incomparably safer and cleaner and the vast majority of the population is doing much less laborious work.

And for the first time in history, life expectancy grew rapidly. Much of that was the result of a huge decline in child mortality, but there were also major improvements in the prospects of older people. In the Pearson era, the average 65-year-old Canadian male could expect to live another 13 years. That figure is now fast approaching 20 years – double what it was when the first old-age pension was created. (The figures for women are all a little higher.)

And thanks to a steady rise in what demographers call “disability-free life expectancy,” the infirmities of old age have been steadily pushed back. The average 70-year-old today may not be skateboarding with teenagers but he is much healthier than the 70-year-olds who got Bismarck’s cheques.

Clearly, OAS and other public pensions long ago ceased to be compensation for presumed disability. Instead, they support a reasonable period of work-free years at the end of a long working life. Retirement, in other words.

The key word there is “reasonable.”

Is retirement at 65 reasonable? We can’t just assume so and call 65 the “normal retirement age,” as a Toronto Star columnist did. It was set long ago under very different circumstances. And there’s nothing fixed about it. The magic number was 70 when OAS was created. Why isn’t that the appropriate age? Or 60? Or 55? Or 75?

We need to have an honest conversation about this. The trends creating strains now will only grow in the future.

One of those trends is population aging. Today there are four workers for every person aged 65 or older. Within 20 years, there will be two. Retirement typically means a big drop in income and taxes paid so the burden on those who remain in the workforce would rise even if the overall tax take remained the same. But it won’t remain the same. Various costs are expected to soar, especially health care. So governments will have to squeeze more money out of fewer people. Or make major cuts to services. Or both. Whatever they do, it won’t be pleasant.

Meanwhile, life expectancy will continue to grow.

In the U.S., where life expectancy is a little behind Canada, some models foresee it reaching 86 for males in 2075 and 88 by the end of the century. Of course, this is far from a sure thing. But for more than a century demographers have mostly underestimated advances in life expectancy, and many feel the orthodox projections are too conservative. I was once told by Robert Fogel – economic historian, Nobel laureate, and the world’s leading expert in these matters – that he expects half of today’s college-age Americans will live to celebrate their 100th birthdays.

And consider what has changed, and continues to change, at the other end of life.

Young people are taking much longer to finish school, leave home, and get a job. The key reason is education. We need more and more of it just to enter the workforce. In Bismarck’s era, a few years of primary school was plenty for almost everyone. By Pearson’s time, high school graduation was expected and post-secondary education was rapidly becoming common.

In 1971, 13 per cent of young men and seven per cent of young women were university-educated. In 2001, those figures had soared to 25 per cent and 29 per cent.

Now postgraduate education is exploding. Which is wonderful. But it will consume more time.

So we have a steadily growing number of years in education. Steadily increasing longevity. And a fixed retirement age. Put that together and it seems that young people could spend almost as many years in retirement as in the workforce.

Some would say that’s paradise. I’m not so sure.

Cost is a huge concern, obviously. It won’t be paradise if the economy is weak, taxes are brutal, or government services have been slashed to the bone.

But work isn’t only about money. A job gives us social engagement, structure, and meaning. What we do is a fundamental part of who we are, and that’s true not only of the lucky few doing jobs they love more than anything else. A truck driver may have lots of things he’d rather do than drive a truck but “I am a truck driver” will still be a big part of who he is. Doubt that? Ask someone who loses a job they didn’t particularly like. It’s not only a paycheque they’ve lost. It’s identity.

Of course, some may find nothing but joy without employment, and they’re welcome to their bliss if they pay the bill. But we are talking about a public pension paid with increasingly precious tax dollars. Why spend large and growing amounts of money encouraging people who could work to stop?

Yes, let’s support a reasonable period of retirement. But that is not a long and growing period of retirement: As longevity and the ability to work rises, so should the age of eligibility for Old Age Security.